MasTec Falls on Gloomy Q2 Guidance - Analyst Blog

Shares of infrastructure construction company MasTec, Inc. MTZ slumped nearly 11% after the company lowered its outlook for the second quarter of 2014 on June 2. The stock has fallen to a 5-month low of $31.30 and finally closed at $32.06.

Notably, MasTec reduced its second quarter earnings per share EPS to 40 cents from 53 cents and cut revenue guidance to around $1.1 billion from the previous range of $1.15–$1.2 billion.

Management charged the weak outlook on unexpected delays in wireless project spending and weaker than expected performance of oil and gas segment. The company also lowered its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) outlook to $105 million from $124 million.

MasTec expects wireless project revenues to decline in the second quarter as various planned projects were deferred and or reduced in scope. The company reported an inventory balance of $89 million as of Mar 31, 2014 from $70 million as of Dec 31, 2013, primarily due to increases in wireless project inventories resulting from delays in project.

These unexpected revenue declines will negatively affect segment results reflecting the effect of reduced absorption of non-variable indirect and overhead costs. In addition, the company foresees that additional changes to levels of second half 2014 wireless project spending may also occur, although the level of potential changes cannot yet be estimated.

In oil and gas front, the company also predicts weaker segment results also due to delays in project start up during the quarter. Pricing pressure on current quarter short-term, mid-stream pipeline activity will also hurt the results.

Though management anticipates that oil and gas revenue levels will grow in the second quarter compared with last year, growth levels are expected to be lower than previous estimates, impacting anticipated second quarter oil and gas segment revenues by about $25-$30 million.

Wireless and oil & gas pipeline are the main growth catalysts for MasTec. The company remains well positioned for growth in Oil & Gas, Wireless, Electrical Transmission and wireline/1 gigabit fiber. However, real-time and short-term changes in wireless business will hurt profitability.

Coral Gables, FL-based MasTec is a leading infrastructure construction company that operates primarily in North America and caters to a range of industries. Its services include engineering, building, installation, maintenance and upgrade of energy, utility and communications infrastructure as well as industrial infrastructure.

At present, MasTec has a Zacks Rank #3 (Hold). Some better-ranked stocks in the building and heavy construction industry include EMCOR Group Inc. EME, Sterling Construction Co. Inc. STRL and Tutor Perini Corp. TPC. All these stocks carry a Zacks Rank #2 (Buy).