Sterling Construction Swings to Earnings, Shares Up - Analyst Blog

Shares of Sterling Construction Co. Inc. STRL jumped as much as 13% on reporting impressive first-quarter earnings yesterday. Earnings stood at 1 cent, reversing the prior-year quarter's loss per share of 39 cents. Results also outperformed the Zacks Consensus Estimate of a loss per share of 8 cents.

Operational Update

Sales improved 21% year over year to $134 million in the quarter, surpassing the Zacks Consensus Estimate of $121 million by a wide margin. The improvement was mainly driven by the increase in projects, particularly in Texas.

Cost of sales increased 16% year over year to $127 million in the quarter. Gross profit during the quarter was $7.9 million, up an impressive 468% from $1.4 million in the prior-year quarter. Improved overall profitability of projects led to the increase. Projects in the year-ago quarter had been impacted by downward revisions on several large jobs, particularly in the Texas market.

General and administrative expenses decreased 12% year over year to $8.57 million. The improvement was due to the decline in employee benefit and other non-recurring costs paid in the first quarter of 2013 to enhance the leadership of the company's information systems management team, as well as for consultant fees and other investments aimed at improving the company's operational performance in the first quarter of 2013. Operating profit in the reported quarter was $0.4 million as against an operating loss of $7.9 million in the prior-year quarter.

Bookings and Backlog

During the first quarter, bookings were at $190 million, a 60% sequential increase, representing a book-to-bill ratio of 1.4:1. As of Mar 31, 2014, total backlog was a record $799 million, up 16.3% sequentially 15.3% year over year increase. The total backlog, however, excluded $71 million of projects where Sterling Construction was the apparent low bidder, and has not been awarded the contract. The total backlog, however, excluded projects worth $71 million, where Sterling Construction was apparently the low bidder but had not yet won the contract.

Financial Update

Cash and cash equivalents were $1.3 million as of Mar 31, 2014, compared with $1.9 million as of Dec 31, 2013. Long-term debt amounted to $21 million as of Mar 31, 2014, compared with $8.3 million as of Dec 31, 2013. The debt-to-capitalization ratio was at 13.8% as of Mar 31, 2014 compared with 6% as of Dec 31, 2013.

Outlook

Sterling expects revenues in 2014 to be higher than 2013 given the strong backlog. Gross margins are projected in mid-to-high single digits as Sterling Construction continues to execute effectively on projects in backlog, and accurately bid new jobs with attractive margin profiles.

With enhancements to the company's corporate infrastructure nearly completed, general and administrative expenses are expected to remain at approximately 6% of revenues. Capital expenditures should be at the same level as 2013.

Houston, TX-based Sterling Construction is a leading heavy civil construction company engaged in the building and reconstruction of transportation and water infrastructure projects in Texas, Utah, Nevada, Arizona, California, and other states. Its transportation infrastructure projects include highways, roads, bridges, and light rail and its water infrastructure projects constitute water, wastewater, and storm drainage systems.

Sterling Construction currently carries a Zacks Rank #3 (Hold). Some better-performing stocks in the Building – Heavy Construction sector include EMCOR Group Inc. EME and Tutor Perini Corporation TPC. Both these stocks hold a Zacks Rank #2 (Buy).

One of Sterling Construction's peers, Chicago Bridge & Iron Company N.V. CBI posted first-quarter adjusted earnings of 87 cents per share, 22.3% below the Zacks Consensus Estimate of $1.12 per share. Adjusted net income, however, improved 12% year over year on the back of strong project activities during the quarter.
 

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