DNOW Q1 Earnings Call: Margin Resilience and Market Diversification Amid Tariff Uncertainty

Energy and industrial distributor DistributionNOW (NYSE:DNOW) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 6.4% year on year to $599 million. Its non-GAAP profit of $0.22 per share was 26.9% above analysts’ consensus estimates.

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StockStory’s Take

DistributionNOW’s first quarter results were shaped by steady demand in U.S. midstream infrastructure and continued momentum in the company’s Process Solutions segment, despite a largely unchanged U.S. rig count and lower completions activity. Management pointed to resilient gross margins and a diversified market mix as core reasons for outperforming expectations. CEO David Cherechinsky highlighted that the quarter delivered the second-best first quarter EBITDA in company history, noting, “This is notable given the misunderstood perception that the upstream sector alone drives opportunities for DNOW.” The company’s recent acquisition in Singapore further contributed to expansion in the Asia Pacific region and strengthened its MacLean International brand, underscoring the importance of international diversification. Cherechinsky also emphasized the effectiveness of DNOW’s supply chain repositioning in response to previous tariff rounds and supply disruptions, which allowed the company to maintain operational flexibility.

Looking ahead, DistributionNOW’s outlook hinges on its ability to manage tariff-driven cost pressures, capitalize on U.S. midstream opportunities, and further penetrate adjacent industrial markets. Management reaffirmed full-year revenue guidance with expectations of flat to high-single-digit growth, supported by continued investment in digital initiatives and targeted M&A. Cherechinsky acknowledged ongoing macro uncertainty, driven by evolving tariffs and fluctuating oil prices, stating, “The dynamics of this environment remain volatile, leading to fluctuations in market sentiment.” The company’s strategy includes passing on supplier cost increases, optimizing pricing structures, and leveraging its purchasing power to buffer against inflation and supply chain volatility. While risks remain from potential declines in U.S. rig activity, DNOW anticipates that midstream demand and its inventory planning will help offset upstream headwinds and support earnings stability.

Key Insights from Management’s Remarks

Management attributed first quarter performance to execution in U.S. midstream and Process Solutions, strategic inventory planning, and swift adaptation to tariff and supply chain changes.

• Midstream and Process Solutions momentum: Increased activity in U.S. midstream infrastructure and a full-quarter contribution from the Trojan acquisition boosted growth, with Process Solutions delivering its highest-ever quarterly revenue contribution.
• Strategic inventory build: The company intentionally increased inventory in anticipation of tariff-related supply disruptions, positioning itself to maintain product availability and optimize procurement costs as tariff impacts unfold.
• International expansion with acquisition: The acquisition of a Singapore-based distributor expanded DistributionNOW’s MacLean International offering in Asia Pacific, targeting diversified end markets such as marine, petrochemical, and data centers.
• Digital transformation progress: DigitalNOW initiatives drove efficiencies, with digital revenue reaching a record 53% of SAP-related sales. Management highlighted the rollout of AI-powered process automation, including certificate indexing and system integration.
• Tariff and inflation management: The company’s supply chain adjustments reduced dependence on China, with most products sourced domestically or from alternative international suppliers. Management expects to pass on cost increases and adjust pricing to protect margins as new tariffs take effect.

Drivers of Future Performance

DistributionNOW’s forward guidance is shaped by tariff-driven pricing, midstream growth, and ongoing diversification into adjacent markets.

• Tariffs and pricing strategy: Management expects recently announced tariffs and supplier cost inflation to drive higher input costs, but plans to pass these through to customers via pricing adjustments. The company anticipates that its inventory position and sourcing flexibility will help maintain gross margin levels.
• U.S. midstream and Process Solutions growth: Demand in U.S. midstream, including infrastructure expansions and gathering asset investments, is projected to remain strong. Process Solutions, strengthened by recent acquisitions, is expected to capture additional revenue from industrial and energy transition markets, such as water, wastewater, and data centers.
• M&A and market adjacencies: DistributionNOW intends to pursue further acquisitions, particularly in U.S. Process Solutions, and seeks to grow in adjacent sectors like mining, chemicals, and renewable energy. Management noted that diversification efforts are designed to reduce reliance on upstream drilling and completion activity, mitigating downside risk from potential rig count declines.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will monitor (1) how effectively DistributionNOW passes on tariff-related cost increases to customers and preserves gross margins, (2) continued expansion and integration of recent acquisitions in international and Process Solutions markets, and (3) the pace of digital adoption and AI-driven process improvements. Progress in adjacent market penetration and the impact of rig count trends will also be watched closely.

DistributionNOW currently trades at a forward EV-to-EBITDA ratio of 10.3×. Should you double down or take your chips? See for yourself in our full research report (it’s free).

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