Sterling's Loss Narrower than Expected

Zacks

Sterling Construction Co. Inc. (STRL) posted loss of 93 cents per share in the second quarter of 2013 compared with the prior-year earnings of 15 cents a share. The loss per share was narrower than the Zacks Consensus Estimate of a loss per share of $1.10. Loss per share was less than the recent management guidance of $1.07–$1.13 a share.

Sterling reported loss in the quarter due to negative impact of three legacy projects, two in Texas and one in Arizona, where costs unexpectedly exceeded initial project estimates.

Revaluation of the liability to non controlling interest owners reduced net loss per share by 9 cents per share in the reported quarter.

Operational Update

Sales decreased 21% year over year to $133 million in the quarter, missing the Zacks Consensus Estimate of $177 million.

Gross loss during the quarter was $16.6 million compared to gross profit of $15.2 million in the prior-year quarter. Gross deficit was 12.5% compared to gross margin of 9% a year ago, due to the adverse impact of the low margin contracts.

General and administrative expenses increased 12.3% year over year to $9.5 million due to new hires to enhance the leadership of the information systems management team and certain non-recurring costs related to the implementation of process enhancements. Operating loss in the reported quarter was $26 million compared with operating profit $8 million in the prior-year quarter.

Bookings and Backlog

Backlog as of Jun 30, 2013 increased to $714 million from $656 million as of Dec 31, 2012.  Bookings were $154 million, up 133% from the second quarter of 2012.
 
Financial Update


Cash and cash equivalents were $1 million as of Jun 30, 2013, compared with $3.1 million as of Dec 31, 2012. Long-term debt amounted to $29.7 million as of Jun 30, 2013, compared with $24.2 million as of Dec 31, 2012. The debt-to-capitalization ratio improved to 13.5% as of Jun 30, 2013, from 10.2% as of Dec 31, 2012. For the second quarter of 2013, capital expenditures fell to $1.8 million from $11.9 million in the prior-year quarter.

Outlook

Sterling Construction expects revenues to remain flat or slightly down for the second half of 2013 compared to 2012. The company also expects improvement in bookings, both in terms of comparable quarter growth and profitability. General and administrative expense will remain higher due to the ongoing investments for integration and future growth. It is anticipated that capital expenditure will be significantly lower for the second half as the current fleet will offer more than adequate capacity to support growth in 2014 and beyond.

Houston, Tex.-based Sterling Construction is a leading heavy civil construction company engaged in the building and reconstruction of transportation and water infrastructure projects in Texas, Utah, Nevada, Arizona, California and other states. Its transportation infrastructure projects include highways, roads, bridges and light rail and its water infrastructure projects constitute water, wastewater and storm drainage systems.

Sterling Construction currently retains a Zacks Rank #3 (Hold).

One of Sterling Construction’s peers Chicago Bridge & Iron Company N.V. (CBI) reported second-quarter adjusted earnings of $1.04 per share, in line with the Zacks Consensus Estimate. Adjusted net income was up 38.6% year over year on the back of strong project activities and a robust backlog.  

Other stocks in the building and heavy construction industry with a favorable Zacks rank are MasTec, Inc. (MTZ) and Primoris Services Corporation (PRIM). Both carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CBI

Read the Full Research Report on PRIM

Read the Full Research Report on MTZ

Read the Full Research Report on STRL

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