DNOW Q2 Earnings Beat Estimates on Revenue Growth, Outlook Raised

DNOW's Geographic Revenue Growth Remains Strong

U.S. revenues reached $1.11 billion, up 110% from $528 million in the year-ago quarter. The region accounted for 85% of consolidated revenues and increased 12.6% sequentially.

International revenues jumped 190.4% year over year to $151 million. Canada generated $47 million, down 2.1% from the prior-year quarter.

DNOW's End-Market Mix Shows Broad Exposure

Upstream remained the largest end market, contributing $508 million, or 39% of total revenues. Gas utilities generated $310 million, representing 24% of the total.

Midstream revenues were $272 million, or 21% of revenues, while downstream and industrial contributed $217 million, or 16%. Within the U.S. business, upstream represented 36% of revenues, followed by gas utilities at 28%, midstream at 23% and downstream & industrial at 13%.

DNOW's Margins Reflect Higher Costs

DNOW’s cost of products increased 113.2% year over year to $1.06 billion. Gross profit increased 88.4% year over year to $243 million. However, the gross margin contracted 190 basis points to 18.6%. Adjusted gross profit rose to $272 million from $146 million, while the adjusted gross margin declined to 20.8% from 23.2%.

Selling, general and administrative expenses increased 112.5% to $238 million. DNOW recorded an operating profit of $1 million compared with $17 million a year earlier. The company also recognized a $4 million impairment charge related to a Houston corporate office lease.

DNOW's Adjusted EBITDA Improves Sequentially

Adjusted EBITDA totaled $60 million, up 17.6% year over year and 54% sequentially. The adjusted EBITDA margin was 4.6% compared with 8.1% in the prior-year quarter and 3.3% in the first quarter of 2026.

GAAP net loss attributable to DNOW was $21 million, or 11 cents per diluted share, compared with net income of $14 million, or 13 cents per share, a year earlier. The quarter included a $19 million increase in the LIFO reserve and $6 million of transaction-related charges.

DNOW's MRC Global Integration Advances

DNOW expects annualized cost synergies from the MRC Global integration to reach an approximately $30 million exit rate by year-end 2026. That represents 43% of its $70 million three-year synergy target and is above the prior 2026 plan of $17 million.

Integration initiatives include commercial cross-selling, leveraging complementary inventory, migrating upstream and midstream locations to an optimized SAP platform, and combining supply capabilities to improve bid competitiveness and capture incremental revenues.

DNOW's Cash Profile

Cash provided by operating activities was $133 million in the second quarter, a company record for the period. Free cash flow totaled $124 million after $9 million of capital expenditures.

DNOW ended the second quarter with $114 million in cash and $474 million of long-term debt. Net debt stood at $360 million, while the net debt leverage ratio improved to 1.7 times. Total liquidity was $472 million, with access to an additional $500 million accordion feature.

DNOW Raises 2026 Outlook

For the third quarter, DNOW expects revenues to increase in the low-to-mid single-digit percentage range sequentially. Adjusted EBITDA margin is projected between 5% and 5.5% of revenues.

For full-year 2026, the company raised its revenue outlook to $5-$5.1 billion and now expects adjusted EBITDA margin to approach 4.5%. Management also increased its cash-from-operations forecast to $125-$200 million.

Zacks Rank and Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks are discussed below:

Applied Industrial Technologies AIT carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Applied Industrial’s earnings surpassed the consensus estimate in each of the trailing four quarters. The average earnings surprise was 4.0%.  In the past 60 days, the Zacks Consensus Estimate for Applied Industrial’s fiscal 2026 bottom line has inched up 0.1%.

IDEX Corporation IEX presently carries a Zacks Rank of 2. IDEX’s earnings surpassed the consensus estimate in each of the trailing four quarters. The average earnings surprise was 7.7%. In the past 60 days, the Zacks Consensus Estimate for IEX’s 2026 earnings has increased 1.4%.

The Middleby Corporation MIDD currently carries a Zacks Rank of 2. Middleby’s earnings topped the consensus estimate in each of the trailing four quarters. The average earnings surprise was 10.4%. In the past 60 days, the Zacks Consensus Estimate for MIDD’s 2026 earnings has increased 0.3%.

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