A month has gone by since the last earnings report for Quanta Services (PWR). Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Quanta Services due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Quanta Services (PWR) Misses on Q2 Earnings, Tweaks View
Quanta Services Inc. reported lower-than-expected results in second-quarter 2019. Both the top and bottom lines missed the Zacks Consensus Estimate during the quarter.
Adjusted earnings during the quarter came in at 31 cents per share, missing the consensus estimate of 84 cents by 63.1%. Also, the reported figure decreased 47.5% from 59 cents per share recorded in the year-ago period. This was primarily due to a charge related to the termination of a large telecommunications project in Peru.
The company reported total revenues of $2.84 billion, lagging the consensus mark of $2.89 billion by 1.8%. However, the said metric increased 6.8% year over year, aided by robust revenue growth in the Electric Power segment, driven by grid modernization, system hardening and other long-term programs.
The company reports results under two reportable segments: Electric Power Infrastructure Services segment (accounting for 61.1%), and Pipeline and Industrial Infrastructure Services (38.9%).
Revenues from Electric Power Infrastructure Services totaled $1,734.3 million, increasing 10.5% year over year. However, operating income of $92.9 million was down 36.4% from the year-ago level. Operating margins also contracted 390 basis points (bps) to 5.4%.
Within the Pipeline and Industrial Infrastructure Services segment, revenues grew 1.7% from the prior-year quarter to $1,104.9 million. Notably, operating income of $69.9 million was up 59.6% from the year-ago period. Operating margins of 6.3% also improved 230 bps year over year.
Operating income during the reported quarter came in at $78.6 million compared with the prior-year figure of $123 million. Operating margin declined 180 bps from a year ago. Adjusted EBITDA of $165.6 million declined 16.6% from $198.6 million a year ago.
As of Jun 30, 2019, the company reported total backlog of $12.8 billion and 12-month backlog of $7.5 billion. This compares favorably with $12.3 billion of total backlog and $7 billion of 12-month backlog at 2018-end. Also, the reported backlog was up from total backlog of $11.5 billion and 12-month backlog $7.4 billion in second-quarter 2018.
As of Jun 30, 2019, Quanta Services had cash and cash equivalents of $73.4 million compared with $78.7 million at 2018-end. The company’s long-term debt (net of current maturities) amounted to $1,517 million, up from $1,040.5 million as of Dec 31, 2018.
Net cash used in operating activities in the quarter was $108.7 million versus $156.5 million cash provided by operating activities in the comparable prior-year period. Free cash flow was a negative $172.9 million in the quarter versus a positive free cash flow of $82.3 million a year ago.
Buoyed by increased visibility and sustained higher infrastructure investment across end-markets served, the company lifted 2019 revenue expectation to $11.5-$11.9 billion from $11.2-11.6 billion projected earlier.
However, the above-mentioned positive factors are likely to be offset by a charge of 54 cents per share associated with the termination of a large telecommunications project in Peru. The company now expects adjusted earnings in the range of $2.99-$3.33 per share versus $3.40-$3.86 expected earlier.
Adjusted EBITDA is now expected between $852 million and $932 million (versus $905-$1 billion projected earlier).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Quanta Services has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Quanta Services has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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