Primoris Tops Q1 Earnings by a Penny, Shares Up - Analyst Blog

Shares of Primoris Services Corporation PRIM gained around 5.2% and closed at $28.85 after the company reported upbeat first-quarter 2014 earnings on Mar 6. Earnings increased 11% year over year to 21 cents per share from 19 cents in the year ago quarter. The results beat the Zacks Consensus Estimate by a penny.

Operational Update

Revenues in the quarter increased 15% year over year to $470 million. The year-over-year rise was driven by increased revenues at ARB Industrial, Q3 Contracting and the James Construction Group Heavy Civil division. The results however lagged the Zacks Consensus Estimate of $481 million.

Cost of sales rose 15.5% to $420 million from $363.9 million in the year-ago quarter. Gross profit improved 8% year over year to $49.8 million. Though, gross margin contracted 60 basis points (bps) year over year to 10.6% due to unusually tough weather and certain permitting and engineering issues.

Selling, general and administrative expenses went up 3.8% year over year to $29.7 million. Operating profit was $20 million, up 14.7% from the prior-year quarter. Operating margin remained flat year over year at 4.3%.

Segment Performance

East Construction Services: Net sales increased 17.3% to $223 million compared with $190 million in the year-ago quarter. Gross profit rose 6.8% to $16 million from $15 million in the year-ago quarter.

West Construction Services: Sales went up 12.7% year over year to $234 million. The segment's gross profit increased 10% year over year to $31.7 million.

Engineering: Net sales grew 7.3% year over year to $13 million. Gross profit however declined to $2.1 million from $2.3 million in the year-ago quarter.

Financial Update

As of Mar 31, 2014, Primoris reported cash and cash equivalents of $149.6 million versus $196.1 million as of Dec 31, 2013. As of Mar 31, 2014, long-term debt decreased to $180.6 million from $191 million as of Dec 31, 2013. The debt-to-capitalization ratio contracted to 33.7% as of Mar 31, 2014, from 35.5% as of Dec 31, 2013.

Total backlog was $1.85 billion as of Mar 31, 2014 against $1.94 billion as of Dec 31, 2013.

During the next four quarters, Primoris will realize revenues of around 43% of the East Construction Services segment backlog, about 98% of the West Construction Services segment backlog and 90% of the Engineering segment backlog.

Primoris witnessed double-digit growth in both top and bottom lines despite difficult weather conditions. The company remains optimistic on strong balance sheet which will provide for the flexibility to continue to invest in external and internal opportunities. For the full year, the company expects net capita expenditure to be in the range of $55 million to $65 million.

In addition, various tailwinds such as the aging pipeline system, oil and natural gas pricing differentials and environmental regulation will drive demand in Primoris' end-markets providing growth opportunities both in the near and mid-term.

Dallas, TX-based Primoris is a specialty contractor and infrastructure company that serves diverse-end markets. The company also provides a wide range of construction, fabrication, maintenance, replacement, water and wastewater as well as engineering services to major public utilities, petrochemical companies, energy companies, municipalities and other customers.

Primoris currently has a Zacks Rank #3 (Hold). 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).