On Mar 16, Zacks Investment Research downgraded Great Lakes Dredge & Dock Corporation (GLDD) to Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Following the release of its fourth-quarter 2012 results on Mar 14, which included a negative 94.4% surprise, earnings estimates for the biggest dredging service provider in the U.S witnessed a sharp downward revision. In the last 7 days, the Zacks Consensus Estimate for 2013 decreased 8% to 56 cents per share while that for 2014 went down 24% to 65 cents per share.
Though Great Lakes’ fourth-quarter revenues increased 31% to $207.1 million, earnings plunged 92% to 1 cent, way short of the Zacks Consensus Estimate of 18 cents. Despite reporting record Dredging revenue of $190 million, up 54%, it was offset by a 52% decline in demolition revenue to $16.6 million.
Gross profit during the quarter increased 19% to $237 million. However, gross margin contracted 100 basis points to 10.6% in the quarter, due to costs incurred in excess of revenue related to pending change orders on certain demolition projects, which was partially offset by an increase in revenue in the dredging segment, specifically higher margin capital projects. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $21.3 million, down 17.4% from $25.8 million in the prior-year quarter.
Great Lakes disclosed that it had recognized revenue in 2012 in a manner not consistent with its accounting policy and admitted failure of internal controls to detect or prevent misstatements in its financial statements. Great Lakes further revealed that 2012 second and third quarter demolition segment revenues were overstated by $3.9 million and $4.3 million, respectively.
Law firms are currently investigating potential accounting and securities fraud at Great Lakes. Since the market’s closing on Mar 14, 2013, Great Lakes’ shares declined $1.62 or 18%, to close on March 15, 2013, at $7.36 per share, on unusually heavy volume.
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