Quanta Beats on Q1 Earnings and Revs - Analyst Blog

Quanta Services Inc. PWR reported first-quarter 2014 non-GAAP earnings (excluding one-time items) of 44 cents a share, beating the Zacks Consensus Estimate of 37 cents a share. Earnings also increased 15.8% from the prior-year quarter's earnings of 38 cents. However, the company's GAAP earnings per share came in at 25 cents, down 26.4% year on year.

The company benefited from its leading position in the energy infrastructure market. Despite headwinds from inclement weather conditions, the company's diligent operational execution led to the growth.

Revenues

Total revenue for the quarter was $1.76 billion, up 10.7% from $1.59 billion in the prior-year quarter, aided by increased demand for the company's safe and reliable services. Revenues were also well ahead of the Zacks Consensus Estimate of $1.71 billion.

Segment Details

Electric Power revenues in the quarter stood at $1.28 billion, up 8.5% from $1.18 billion in the prior-year period. The Electric Power segment continued to experience increased demand for electric transmission and distribution services, despite reduced spending in the industry. This is because the companies continued to upgrade and strengthen the distribution networks to sustain the harsh weather. The business also benefited from the improvement in the residential and infrastructure industry. In addition, regulations to improve renewable interconnections and the impact of switching to gas generation are expected to continue to drive the power industry's investments and electric infrastructure over the long term.

Oil and Gas Infrastructure segment (effective Dec 31, 2013, the company's Natural Gas and Pipeline Infrastructure Services segment was renamed the Oil and Gas Infrastructure Services segment) revenues came in at $445.8 million, reflecting a 24.2% year-over-year increase. This growth was driven by increased revenues from projects related to unconventional shale developments in certain regions of North America including Canada. Moreover, growing investment in the midstream infrastructure is also benefiting the company. Quanta's pipeline-gathering activity remains active and the company has been experiencing increased demand for its mainline pipe construction services for the last few quarters.

Fiber Optic Licensing revenues declined nearly 16% to $38.5 million from $45.8 million in the comparable quarter last year. The decline in revenues was primarily attributable to a fall in telecom service revenues. However, the management has taken initiatives to transform the business. As part of these initiatives, the company has already begun deploying its new lit services that are expected to benefit the business significantly in the long run. In the quarter, the costs for this deployment as well as for maintaining the company's dark fiber network proved to be a drag on the segment revenues.

Income and Expenses

Operating income in the quarter was $90.5 million compared with $119.3 million in the prior-year quarter, reflecting a decline of 24.1%. Selling, general and administrative expense (SG&A) expense was $134.5 million as against $113.7 million in the comparable quarter last year.

Cash Flow and Balance Sheet

Exiting the quarter, cash and cash equivalents were $273.3 million and shareholders' equity was $4.3 billion. Operating cash flow from continuing operations was about $61 million in the quarter. Capital expenditures stood at about $69 million, while free cash flow was a negative $130 million, wider than the negative $12 million recorded in the prior-year quarter.

Outlook

Quanta is positive about its performance going forward. It expects revenues for the second quarter of 2014 to range between $1.7 billion and $1.9 billion. On a non-GAAP basis, the company expects earnings to be in the range of 40 cents to 42 cents in the quarter.

For full-year 2014, the company reaffirmed its revenue guidance to remain in the range of $7.4 billion to $7.8 billion, while earnings on GAAP basis are expected in the range of $1.53–$1.73 per share, narrower than the previously projected range of $1.65–$1.85 per share. GAAP earnings include a previously stated arbitration-related expense of 12 cents a share. The company expects amortization of intangibles and non-cash stock-based compensation expense to be in the band of $33.3–$35.5 million for full-year 2014. Excluding these expenses and others, the company reiterated its guidance for non-GAAP adjusted earnings to be between $1.85 per share and $2.05 per share.

Quanta currently holds a Zacks Rank #4 (Sell). Some other players operating in the same industry that are worth considering include Pernix Group Inc (PRXG), VSE Corp. VSEC and Willdan Group, Inc. WLDN. While, Pernix Group carries a Zacks Rank #1 (Strong Buy), both VSE Corp. and Willdan Group have a Zacks Rank #2 (Buy).