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Analyst Blog

Shares of Sterling Construction Co. Inc. (STRL - Snapshot Report) have dipped 4% since reporting fourth quarter adjusted loss of $1.82 per share on March 17. Results compared unfavorably to the earnings per share of 1 cent in the prior year quarter as well as the Zacks Consensus Estimate of a loss per share of $1.47.

Including the impact of a non-cash tax valuation allowance, quarterly loss was $3.52 per share compared with earnings per share of 1 cent in the prior-year quarter.

Operational Update

Sales plunged 20% year over year to $126 million in the quarter, missing the Zacks Consensus Estimate of $158 million by a wide margin. The decline was mainly due to the write-downs in the current year on the three projects in Texas, awarded prior to 2012, and the impact of weather related delays and issues with subcontractors on these jobs. In contrast, the prior-year quarter had benefitted from the completion of several large projects in Utah, particularly the I-15 CORE Reconstruction Joint Venture Project.

Cost of sales increased 5% year over year to $149 million in the quarter. Gross loss during the quarter was $23 million compared to gross profit of $16.3 million in the prior-year quarter due to the problem projects in Texas. General and administrative expenses increased 49% year over year to $13.7 million. Operating loss in the reported quarter was $36.7 million compared with operating profit of $7.1 million in the prior-year quarter.

Bookings and Backlog

Bookings in the quarter and 2013 were $119 million and $635 million respectively.  Backlog as of 2013  was at $687 million, up 4.7% year over year. Approximately 18% or $123 million of the backlog reflects projects awarded prior to 2012, which are scheduled to be completed by  second quarter 2014.

Fiscal 2013 Performance

Sterling Construction reported a loss per share of $3.21 in fiscal 2013 compared with a prior year loss of 26 cents per share, again missing  the Zacks Consensus Estimate of a loss per share of $2.84. Including the abovementioned tax valuation allowance Sterling reported a loss per share of $4.91 in fiscal 2013 compared with a loss per share of 26 cents, in the prior fiscal.

Revenues dipped 12% year over year to $556 million, falling  much below the Zacks Consensus Estimate of $614 million.

Financial Update

Cash and cash equivalents were $1.9 million as of Dec 31, 2013, compared with $3.1 million as of Dec 31, 2012. Long-term debt amounted to $8.3 million as of Dec 31, 2013, compared with $24.2 million as of Dec 31, 2012. The debt-to-capitalization ratio improved to 6% as of Dec 31, 2013 from 10% as of Dec 31, 2012.

Sterling expects revenues in 2014 to be higher than 2013 and noted that the loss-making pre-2012 projects will be completed. At the end of  first quarter 2014, the loss-making projects in aggregate will be 96% complete. The favorable booking trend is expected to continue both in terms of revenue and gross margin.

Houston, TX-based Sterling Construction is a leading heavy civil construction company engaged in the building and reconstruction of transportation and water infrastructure projects in Texas, Utah, Nevada, Arizona, California, and other states. Its transportation infrastructure projects include highways, roads, bridges, and light rail and its water infrastructure projects constitute water, wastewater, and storm drainage systems.

Sterling Construction currently carries a Zacks Rank #5 (Strong Sell). Some better performing stocks in the Building – Heavy Construction sector include India Globalization Capital, Inc. (IGC) and MasTec, Inc. (MTZ - Analyst Report). Both of these stocks hold a Zacks Rank # 2 (Buy).

One of Sterling Construction’s peers Chicago Bridge & Iron Company N.V. (CBI - Analyst Report) 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.

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