Great Lakes' Revs Beat, Earnings Miss

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Great Lakes Dredge & Dock Corporation (GLDD) reported earnings per share of 1 cent in the first quarter of 2013, half the year-ago quarter’s earnings and falling short of the Zacks Consensus Estimate of 5 cents. Weak results at the demolition segment offset improved performance in the dredging segment.
 
Operational Update
 
Sales increased 22% year over year to $189 million in the quarter, ahead of the Zacks Consensus Estimate of $181 million. Dredging revenue surged 41% to $174 million, driven by an increase in coastal protection revenue as well as domestic and foreign capital revenue. However, demolition revenue declined 54% to $14.8 million in the quarter, negatively impacted by delays in three projects leading to a shift of $7 million of revenue into the remainder of 2013. In addition, another project experienced unexpected cost overruns. 
 
Gross profit during the quarter increased 29% to $25.8 million. Gross margin expanded 80 basis points to 13.7% in the quarter. In the Dredging segment, gross margin improved to 18% in the quarter from 13% in the last year quarter, driven by an increase in revenue and more favorable weather and better production. On the other hand, the Demolition segment recorded negative gross profit margin of 36.8% compared with 12.5% in the prior year quarter, driven by the decrease in revenue and cost overruns on certain projects.
 
General and administrative expenses surged 45% to $19 million, primarily related to the revenue recognition issues discovered at 2012 end, as well as the addition of Terra Contracting. Total operating income was $6.6 million; a 2% decline from the year-ago quarter’s operating income of $6.7 million. Operating margin plunged 90 basis points to 3.5% in the quarter.  Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) was $18 million, up 24% from $14.6 million in the prior-year quarter.
 
Demolition operating income increased 288% to $19 million from the prior year quarter, driven by increased gross profit, partially offset by an increase in general and administrative expenses. The demolition segment reported an operating loss of $12.4 million compared with an operating profit of $1.9 million in the prior year quarter. The segment incurred a loss due to negative gross profit and additional general and administrative expenses, primarily related to bad debt as well as the addition of Terra Contracting at the end of 2012.
 
Financial Update
 
As of the first quarter end, Great Lakes had cash and cash equivalents of $6.6 million, down from $24.4 million as of 2012 end. Total debt increased to $271 million as of the first quarter end from $263 million as of 2012 end.
 
Total backlog as of the first quarter end stood at $417 million, down from $449 million as of 2012 end.
 
In Dec 2012, Great Lakes purchased the assets of Terra Contracting, a provider of essential services for environmental, maintenance and infrastructure-related applications. The acquisition will enable Great Lakes to broaden the service offerings of its demolition and environmental businesses and expand their market reach.  
 
Terra Contracting and Great Lakes’ Rivers & Lakes group are working together on a project in the Midwest valued at approximately $25 million that will combine Terra Contracting’s services and Rivers & Lakes’ dredging abilities. This significant win should contribute to revenue of both  the groups. Furthermore, Great Lakes’ environmental joint venture company, TerraSea, is in final negotiations for an environmental project in New Jersey. 
 
After a record fourth quarter of 2012, the Dredging segment delivered another strong quarter. This momentum is expected to continue, going forward. Great Lakes’ Australia and Brazil projects will begin dredging in the second quarter. The domestic dredging bid market continues to be active. Great Lakes has won 52% of the market in the first quarter and added a $30 million coastal protection project in April. There continue to be numerous prospective Superstorm Sandy related projects. The State of Louisiana recently announced $340 million of potential projects funded by the initial BP settlement.
 
The demolition segment will, however, require some time to deliver a turnaround. Great Lakes foresees numerous demolition and environmental remediation opportunities on the horizon, and plans to selectively target those projects that it can execute well.
 
Great Lakes Dredge & Dock Corporation is the largest provider of dredging services in the United States. Great Lakes is also one of the largest U.S. providers of commercial and industrial demolition and remediation services, mainly in the Northeast. The company owns a 50% interest in a marine sand mining operation in N.J. that supplies sand and aggregate for road and building construction and a 50% interest in an environmental service operation with the ability to remediate soil and dredged sediment treatment. Great Lakes owns and operates the largest and most diverse fleet in the U.S. industry, comprising over 200 specialized vessels.
 
Great Lakes currently holds a Zacks Rank #5 (Strong Sell). Other stocks to consider in the same industry with a favorable Zacks Rank are Primoris Services Corporation (PRIM) with a Zacks Rank #1 (Strong Buy) while Orion Marine Group Inc. (ORN) and  Chicago Bridge & Iron (CBI) retain a Zacks Rank #2 (Buy).
Read the Full Research Report on CBI

Read the Full Research Report on ORN

Read the Full Research Report on PRIM

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