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Quanta (PWR) Q3 Earnings & Revenues Beat Estimates, Stock up

·6 min read

Quanta Services Inc. PWR reported impressive earnings for third-quarter 2020. Adjusted earnings not only surpassed the Zacks Consensus Estimate but also grew impressively on a year-over-year basis. Meanwhile, revenues during the quarter beat the consensus mark but declined on a year-over-year basis. Backed by the solid results, the company raised its 2020 expectations for net income, EBITDA and earnings per share. Notably, positive investor sentiments were witnessed as shares of the company grew more than 5% during pre-market trading session on Oct 29.

Detailed Discussion

In the quarter under review, Quanta reported adjusted earnings of $1.40 per share that comfortably topped the consensus estimate of $1.11 by 26.1% and increased 22.8% from the year-ago $1.14.

Total revenues of $3,020.2 million surpassed the consensus mark of $3,015 million by 0.2% and decreased 9.9% year over year due to lower contribution from its Pipeline and Industrial Infrastructure Services segment.

Operating margin for the quarter rose 180 bps from a year ago to 8%. Adjusted EBITDA of $353.3 million improved 13.2% from $312.2 million a year ago.

The company reported 12-month backlog of $8,143 million and total backlog of $15,071.6 million at September-end. At September 2019-end, 12-month backlog came in at $7,558.9 million and total backlog was $13,282.1 million. Moreover, the reported metrics increased from 2019-end respective figures of $7,947.1 million and $15,004.9 million.

Quanta Services, Inc. Price, Consensus and EPS Surprise

Quanta Services, Inc. Price, Consensus and EPS Surprise
Quanta Services, Inc. Price, Consensus and EPS Surprise

Quanta Services, Inc. price-consensus-eps-surprise-chart | Quanta Services, Inc. Quote

Segment Details

The company reports results under two reportable segments: Electric Power Infrastructure Services segment (accounting for 69.8% of third quarter revenues), and Pipeline and Industrial Infrastructure Services (30.2%).

Third-quarter revenues from Electric Power Infrastructure Services totaled $2,107.6 million, increasing 12.3% year over year. Operating margins expanded 330 basis points (bps) to 12.7%. The segment’s 12-month backlog was $5,949.4 million, up from $4,979.1 million a year ago. Total backlog of $10,792.1 million also grew from $8,638.8 million reported in the prior-year quarter.

Within the Pipeline and Industrial Infrastructure Services segment, revenues declined 38.2% from the prior-year quarter to $912.5 million. Operating margin of 8.4% also contracted 60 bps year over year. Segment’s 12-month backlog totaled $2,193.6 million, down from $2,579.8 million a year ago. Also, total backlog declined to $4,279.5 million from $4,643.3 million in the prior-year quarter.

Liquidity

As of Sep 30, 2020, Quanta had cash and cash equivalents of $216.9 million compared with $164.8 million at 2019-end. The company’s long-term debt (net of current maturities) amounted to $1,202.4 million, up from $1,292.2 million as of Dec 31, 2019.

Net cash provided by operating activities was $114.9 million for the third quarter compared with $91.2 million in the prior-year quarter. Free cash flow during the quarter came in at $70 million compared with $30.3 million reported in the year-ago quarter.

Updates 2020 Guidance

The company now expects revenues in the range of $11.1-$11.3 billion versus the prior expectation of $11-$11.4 billion.

It expects adjusted earnings between $3.52 and $3.64 per share compared with $3.18-$3.48 expected earlier. The mid-point of the current projection is above the year-ago figure of $3.33 per share. Adjusted EBITDA is projected within $986 million to $1.01 billion versus $903-$964 million projected previously.

Meanwhile, Quanta’s raised full-year non-GAAP free cash flow projection remains stable at $600-$800 million.

Importantly, the above-mentioned projections are inclusive of the expected results from its LATAM operations. LATAM operations are expected to generate revenues of $10-$15 million. Operating loss is expected in the range of $55-$60 million, while loss per share is likely to be in the band of 38-41 cents.

Recent Achievements

In October, Quanta entered into a contract to construct the New England Clean Energy Connect Transmission Project. Notably, the work requires construction of approximately 145 miles of new, high-voltage direct current transmission line from the Canadian border to a substation in Lewiston, Maine, for delivering renewable hydropower. The company expects the work to begin during the fourth quarter of 2020 and anticipates completing it by the first quarter of 2023.

Apart from this, the company completed three acquisitions during the third quarter of 2020. In July, the company closed the acquisition of a leading professional engineering firm based in Chicago, IL, that provides infrastructure engineering and design services to electric utilities, gas utilities and communications services companies.

In August, the company completed the acquisition of a utility contractor that provides electric power distribution, transmission and substation maintenance and construction services, primarily in the Southeastern and Mid-Atlantic regions of the United States.

In September, it completed the acquisition of a communications contractor that primarily serves the Mountain West region of the United States and specializes in the deployment of short- and long-haul fiber optic cable and utilities and the engineering and design of small and largescale projects.

Zacks Rank & Key Picks

Quanta 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 Jacobs Engineering Group Inc. J, KBR, Inc. KBR and Gates Industrial Corporation plc GTES, each carrying a Zacks Rank #2 (Buy).

Jacobs has a three-five-year earnings per share growth rate of 7.8%.

KBR has a trailing four-quarter earnings surprise of 4.6%, on average.

Gates Industrial’s 2021 earnings are expected to surge 40.2%.

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