Great Lakes Dredge & Dock Posts Q1 Loss - Analyst Blog

Shares of Great Lakes Dredge & Dock Corp. GLDD dropped around 11.5% since it reported its first-quarter 2014 results on May 6. The dredging services provider reported loss per share of 4 cents, compared with earnings per share of 8 cents in the year-ago quarter. Reported earnings missed the Zacks Consensus Estimate of 3 cents per share.
 
Operational Update

Sales decreased 3.2% year over year to $174 million in the quarter, also fell short of the Zacks Consensus Estimate of $205 million. The decline was mainly due to lower revenues in dredging segment.

Dredging revenues decreased 6.9% to $162 million, due to lower capital dredging and rivers & lakes revenues, partially offset by higher maintenance and coastal protection revenues. Environmental & remediation segment's revenues were at $12.7 million, increased more than two-fold driven by a large number of projects.

Gross profit during the quarter decreased 32% to $20.9 million from $30.7 million in the year ago quarter. Gross margin contracted 510 basis points to 12% in the quarter as a result of lower gross margins in some of the dredging contracts due to severe weather and equipment downtime.

General and administrative expenses surged 10% year over year to $17.9 million. Adjusted operating income was $3 million, significantly down from $14.5 million in the year-ago quarter primarily due to lower coverage of fixed costs.

Operating margin was 1.7%, against 8% in the year-ago quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations were $12 million down from $25.4 million in the first quarter of 2013 due to lower operating income.

Gross margin was 12.9% in the dredging segment compared with 18% in the year-ago quarter. Weather and mechanical delays, along with lower fixed costs coverage led to contraction in gross margin. The margin contraction was also driven by minimal dredging activity in the Middle East. Gross margin in the Environmental & Remediation segment was 0.4% driven by better fixed cost coverage.

Financial Update
 
As of Mar 31, 2014, Great Lakes Dredge & Dock reported cash and cash equivalents of $58.7 million versus $75.3 million as of Dec 31, 2013. As of Mar 31, 2014, long-term debt increased to $287 million from $285 million as of Dec 31, 2013. Total backlog as of Mar 31, 2014 was $592.5 million, up 52.5% from the backlog of $388 million in the year-ago comparable period.

Our Take

Great Lakes Dredge & Dock will benefit from capital projects, including the PortMiami deepening, coastal protection projects and maintenance dredging. In addition, several bidding opportunities, especially in the Middle East, would allow for strong utilization of internationally deployed fleet.

The company remains optimistic that the Senate and House will agree on a final version of the Water Resources Reform and Development Act for passage by the end of second quarter, which will help expedite projects.

Great Lakes Dredge & Dock expects the majority of the environmental & remediation segment's backlog to be completed in 2014. The company's continuous focus on managing working capital and free cash will also drive growth. However, the company remains concerned about the severe weather delays which will affect revenues in future.

Great Lakes Dredge & Dock is the largest provider of dredging services in the United States and also one of the largest providers of commercial and industrial demolition and remediation services, in the U.S., mainly in the Northeast. Great Lakes Dredge & Dock owns and operates the largest and most diverse fleet in the U.S. industry, comprising over 200 specialized vessels.
 
Great Lakes Dredge & Dock currently holds a Zacks Rank #4 (Sell). However, some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. SSD, United Rentals, Inc. URI and EMCOR Group Inc. EME. While Simpson and United Rentals carry a Zacks Rank #1 (Strong Buy), EMCOR Group has a Zacks Rank #2 (Buy).