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Great Lakes Dredge & Dock Beats on Earnings

Zacks Equity Research

Shares of Great Lakes Dredge & Dock Corporation (GLDD) have gone up 2% since it reported its fourth-quarter and full-year 2013 earnings on Jan 25. 2013 earnings per share of 33 cents, increased three fold from the year-ago earnings of 11 cents, in line with the Zacks Consensus Estimate. The dredging services provider reported earnings per share of 8 cents in the fourth quarter, down 11% from 9 cents in the year-ago quarter, but ahead of the Zacks Consensus Estimate of 6 cents per share.
Operational Update

Sales increased 13% year over year to $216 million in the quarter, ahead of the Zacks Consensus Estimate of $202 million. The improvement was mainly driven by the Terra Contracting acquisition.

Dredging revenues decreased 7% to $177 million, due to lower domestic capital revenues, which offset higher coastal protection revenues. Environmental & remediation segment’s revenues were at $41.6 million compared with a minimal $0.06 million in the year ago quarter due to the acquisition of Terra Contracting at the end of 2012.

In 2013, revenues increased 24% year over year to $731 million, falling short of the Zacks Consensus Estimate of $745 million. Benefits from the acquisition of Terra Contracting business and increased dredging revenues led to the year-over-year improvement.

Gross profit during the quarter decreased 4% to $28 million. Gross margin contracted 240 basis points to 12.9% in the quarter as lower gross margins in domestic capital dredging offset higher gross margins in the environmental & remediation segment.

General and administrative expenses surged 34% to $19 million. Adjusted operating income was $8.6 million, down 41% from $14.7 million in the year-ago quarter. Operating margin was 4%, a 370 basis point contraction from 7.7% in the year-ago quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (:EBITDA) from continuing operations were $25 million down from $29.7 million in the fourth quarter of 2012 due to lower operating income.

Gross margin was 10.7% in the dredging segment compared with 15.2% in the year-ago quarter. Lower gross margins on fewer capital projects in the current quarter were pitted against the inclusion of higher-margin port work in New York and New Jersey, along with coastal island restoration work in Louisiana last year, which led to contraction in gross margin.

Gross margin in the Environmental & Remediation segment was 21.8% driven by strong environment remediation projects at Terra Contracting, a project in the Midwest U.S., that contributed almost 62% of the segment’s gross profit in the quarter.

Financial Update
At the end of 2013, Great Lakes Dredge & Dock had cash and cash equivalents of $75 million, up from $24.4 million as of 2012-end. Total debt increased to $285 million at the end of 2013 from $263 million as of 2012-end. Total backlog as of 2013-end was 543 million, up from $449 million as of 2012-end.
Our Take

The dredging segment delivered a strong performance in 2013, recording the largest yearly revenue in its history during 2013. This was driven by coastal protection and foreign capital projects. At the end of the fourth quarter, the company began working on the Port Miami deepening project and has been awarded the full contract for approximately $206 million.  Great Lakes Dredge & Dock will continue to work on this project for approximately the next 18 months. The domestic dredging bid market was at a record level in 2013 which bodes well for Great Lakes Dredge & Dock.
The company will benefit from the planned sale of its underperforming demolition business. The business has delivered disappointing results for several quarters and has not achieved the targeted synergies. Great Lakes Dredge & Dock continues to evaluate several opportunities that will position it for further growth thereby expanding its environmental & remediation services that complement its core dredging business.

Great Lakes Dredge & Dock Corporation is the largest provider of dredging services in the United States. It is also one of the largest U.S. providers of commercial and industrial demolition and remediation services, mainly in the Northeast. Great Lakes Dredge & Dock owns and operates the largest and most diverse fleet in the U.S. industry, comprising over 200 specialized vessels.
Rank & Peer Performance

Great Lakes Dredge & Dock currently holds a Zacks Rank #3 (Hold). A better-ranked stock in the building and heavy construction industry is Orion Marine Group, Inc (ORN) with a Zacks Rank #2 (Buy).

Among Great Lakes Dredge & Dock’s peers, Chicago Bridge & Iron Company N.V. (CBI) posted fourth-quarter adjusted earnings of $1.91 per share (excluding the one-time items), well exceeding the Zacks Consensus Estimate of $1.17 per share and its year-ago quarter’s earnings of 95 cents.

Another peer, Tutor Perini Corporation (TPC) reported a 3% year-over-year increase in its fourth-quarter adjusted earnings to 68 cents per share, ahead of the Zacks Consensus Estimate of 61 cents.

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