Sterling's (STRL) Q4 Earnings Beat, Revenues Lag, Stock Up
Sterling Infrastructure, Inc. STRL reported mixed fourth-quarter 2023 results, with earnings surpassing the Zacks Consensus Estimate and revenues missing the same. Both the top and the bottom line increased year over year.
The upside was driven by strong contributions from the Transportation and Building Solutions segments, along with its strategic emphasis on higher margins. Shares of STRL rose 3.4% in the after-hours trading session on Feb 26.
The company witnessed strong profitability growth drivers across its business segments. In the E-Infrastructure Solutions division, there was notable strength in data centers and large manufacturing activity, particularly in the Southeast. Meanwhile, the Northeast faced challenges due to e-commerce slowdowns. The year-end backlog for E-Infrastructure Solutions increased by 35% year over year, aligning with STRL's expectation of high single to low double-digit revenue growth in 2024.
Inside the Headlines
Sterling reported earnings per share (EPS) of $1.30, which surpassed the consensus estimate of $1 by 30%. The reported figure rose 97% from 66 cents a year ago.
Quarterly revenues of $486 million missed the consensus mark of $526.9 million by 7.8%. However, the reported figure increased 8.2% from the year-ago level of $448.6 million.
Sterling Infrastructure, Inc. Price, Consensus and EPS Surprise
Sterling Infrastructure, Inc. price-consensus-eps-surprise-chart | Sterling Infrastructure, Inc. Quote
Overall, the company’s gross profit came in at $91.8 million, reflecting a rise from $69 million a year ago. Gross margin expanded 350 basis points (bps) from the year-ago period to 18.9%.
Operating margin of 11.5% rose from 8.3% in the reported period. Adjusted EBITDA for the reported period increased 37% from the prior-year period to $68.9 million.
Sterling’s combined backlog (includes Unsigned Awards of $303.2 million and $275 million for 2023-end and 2022-end, respectively) at the end of 2023 was $2.37 billion, up 40% from $1.69 billion at 2022-end.
Segmental Discussion
STRL currently operates in three reportable segments — E-Infrastructure Solutions (45% of revenue), Transportation Solutions (36%) and Building Solutions (19%).
E-Infrastructure Solutions: This segment’s revenues fell 12.1% year over year to $217.5 million in the fourth quarter. However, operating income increased 26.2% year over year to $37.6 million. The operating margin expanded 520 bps from the year-ago quarter to 17.3%. A shift toward large, mission-critical projects drove the upside.
Transportation Solutions: Revenues from this segment increased 39% year over year to $175.7 million in the reported quarter. Operating income increased 141.9% year over year to $12.3 million. The operating margin expanded 300 bps to 7% from the year-ago period. The company witnessed broad-based demand across its Transportation Solutions footprint and end markets and anticipates continued strength in 2024.
Building Solutions: Segment revenues increased 24% year over year to $92.8 million in the reported quarter. On a year-over-year basis, Residential markets saw a significant 25% uptick, but commercial markets declined by 27%. This resulted in a favorable mix impact on segment margins. Operating income increased 35.2% from the prior-year quarter to $11.2 million. The operating margin expanded 100 bps from the year-ago period’s value of 11% to 12%.
Financial Details
As of Dec 31, 2023, cash and cash equivalents totaled $471.6 million compared with $181.5 million at the end of 2022. Long-term debt was $315 million, down from $398.7 million at the end of 2022. Cash flow from operations was $478.6 million for 2023 compared with $219.1 million for 2022.
2023 Highlights
For the year, Sterling reported revenues of $1.97 billion, up 11.5% from 2022. EPS of $4.44 increased from $3.16 a year ago. Operating margin of 10.4% expanded 140 bps year over year. Adjusted EBITDA of $259.9 million was up an impressive 24% from the 2022 level of $209.5 million.
2024 Guidance
For 2024, the company expects revenue to range from $2.125 billion to $2.215 billion. The gross margin is anticipated to be around 17.5% and EBITDA between $285 million and $300 million. EPS are expected to be in the range of $4.85-$5.15.
For the year, G&A expenses are likely to be 5% of revenues. The effective tax rate is expected to be around 27%, while net income is likely to be in the range of $155-$165 million. Shares outstanding are expected to be 32 million in 2024.
Zacks Rank
Sterling currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Martin Marietta Materials, Inc. MLM reported mixed fourth-quarter 2023 results, with earnings surpassing the Zacks Consensus Estimate and increasing on a year-over-year basis. Revenues missed the consensus mark but rose year over year.
In the future, MLM anticipates strong demand for infrastructure, large-scale energy and domestic manufacturing projects. This will largely offset weaker residential demand and the anticipated softening in light non-residential activity. With mortgage rates stabilizing and affordability headwinds receding, MLM fully expects single-family residential construction to recover as demand still exceeds supply, particularly in its key markets.
Louisiana-Pacific Corporation LPX reported impressive fourth-quarter 2023 results. Earnings and net sales beat their respective Zacks Consensus Estimate.
On a year-over-year basis, LPX’s earnings increased on reduced costs and inflationary pressure despite lower net sales.
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