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Construction Partners (ROAD) Dips 15% on Q4 Earnings Miss

Zacks Equity Research

Construction Partners, Inc.’s ROAD shares tanked almost 15% in the after-hour trading session on Dec 9, following the release of fourth-quarter fiscal 2019 results. Although the company’s earnings and revenues grew from the year-ago level, the metrics missed analysts’ expectations, thereby hurting investors’ sentiment.

Earnings & Revenue Discussion

Construction Partners reported earnings of 32 cents per share in the quarter under review, missing the Zacks Consensus Estimate of 34 cents by 5.9%. However, the said figure increased 10.3% from the year-ago figure of 29 cents per share as a result of higher revenues and margins.

Consolidated revenues of $237.3 million missed the consensus mark of $250.8 million by 5.4%. The reported figure, however, increased 10% year over year owing to sustained demand for road repair and maintenance projects across the markets served, acquisition of two hot-mix asphalt plants, along with favorable working conditions.

Gross profit came in at $38.9 million in the quarter, up 16.1% year over year. Gross margin came in at 16.4% in the quarter, up 90 basis points (bps) year over year. Operating margin grew 10 bps year over year to 9.4% in the quarter.

Construction Partners, Inc. Price, Consensus and EPS Surprise

 

Construction Partners, Inc. Price, Consensus and EPS Surprise

Construction Partners, Inc. price-consensus-eps-surprise-chart | Construction Partners, Inc. Quote

Fiscal 2019 Highlights

Earnings of 84 cents per share decreased 24.3% from fiscal 2018-end. Nonetheless, revenues came in at $783.2 million, up 15.2% year over year. Gross margin expanded 50 bps to 15.1% in the fiscal year. Operating margin, however, contracted 170 bps to 7.3%. That said, adjusted EBITDA margin was 11.8%, up 70 bps.

Backlog

Project backlog as of Sep 30, 2019 was $531.1 million, down from $594.4 million on Sep 30, 2018. This is mainly due to the company’s strategic focus on recurring repair and maintenance projects. It expects backlog to grow through the first half of fiscal 2020 owing to a return to a normal project mix in several key markets, a gas tax increase in Alabama that took effect in September, and an acquisition completed in October in a high-growth area in Florida.

Fiscal 2020 Guidance

The company expects revenues between $830 million and $870 million. This indicates an increase from fiscal 2019 revenues of $783.2 million. Adjusted EBITDA is expected between $94 million and $102 million, suggesting an increase from $92.3 million in fiscal 2019.

Notably, the fiscal 2020 outlook does not take into account the potential impact of any new federal or state infrastructure or highway-related legislation that could take effect during the fiscal year.

Zacks Rank & Key Picks

Construction Partners currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Some better-ranked stocks in the same space include Foundation Building Materials, Inc. FBM, Gibraltar Industries, Inc. ROCK and Installed Building Products, Inc. IBP, each sporting a Zacks Rank #1.

Foundation Building Materials has a three-five year expected EPS growth rate of 54.1%.

Gibraltar’s earnings are expected to increase 11% in 2020.

Installed Building Products has a three-five year expected EPS growth rate of 16%.

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