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Tutor Perini Shares Fall on Earnings Miss

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Shares of Tutor Perini Corporation (TPC - Free Report) have dipped 3% since it reported a 9% year-on-year decline in third quarter adjusted earnings to 49 cents per share on Nov 4. Earnings dropped due to reduced activity on certain large healthcare and office facility projects in the Building segment in California. The results missed the Zacks Consensus Estimate of 55 cents.
Including one time items, earnings in the quarter were the same at 49 cents. Including an impairment charge, net of tax benefit, earnings in the year-ago quarter were 88 cents. Compared to this, earnings in the quarter plunged 44%.
Operational Updates

Total revenue went down 6% year over year to $1,030 million, missing the Zacks Consensus Estimate of $1,228 million. Revenues were affected by reduced activity on certain large healthcare and office facility projects in the Building segment in California.

Barring Civil, revenues declined across all segments. Management Services suffered the worst with a 28% decline to $37 million, followed by Building with a 10% dip to $352 million and Specialty Contractors witnessed a 9% decline to $287 million. The 8% increase in revenues to $380 million in the Civil segment was not enough to compensate the decline in the other three segments.

Cost of sales decreased 8% to $909 million from $984 million in the year-ago quarter. Gross profit rose 5% year over year to $121 million. Gross margin improved 120 basis points (bps) to 11.7%.

General and administrative expenses increased 3% year over year to $63 million. Operating profit was $58 million, a 6% increase from $55 million in the year-ago quarter. Operating margin was 5.6%, a 60 basis points improvement from 5% in the year-ago quarter.

Financial Updates
As of Sep 30, 2013, cash and cash equivalents were $128 million versus $168 million as of Dec 31, 2012. Cash used in operating activities was $11 million for the first nine-month period of 2013 compared with $28 million in the prior-year comparable period.
Long-term debt, excluding current portion, amounted to $670 million as of Sep 30, 2013, compared with $669 million as of Dec 31, 2012. The debt-to-capitalization ratio remained flat at 39.2% as of Sep 30, 2013 compared with the level as of Dec 31, 2012.
Backlog and Pending Orders

Total backlog as of Sep 30, 2013, was $6.9 billion, up 24% year over year, highest since the third quarter of 2008. In the quarter, additions to backlog worth mentioning were - Tutor Perini’s $511 million share of the $1.022 billion joint venture California High-Speed Rail design-build project, two Wisconsin highway construction contracts (total value of $191 million), a $47 million transit station electrical subcontract, and a $24 million military housing renovation project in Guam. Tutor Perini expects a number of attractive civil infrastructure and building projects which could be awarded in the balance of this year or first half of next year.

Tutor Perini expects the fourth quarter to be benefited by continued ramp-up of several large Civil projects.Tutor Perini retained its earnings guidance for 2013, which is expected in the band of $1.65–$1.90 per share and revenues in the range of $4.5–$5 billion.

The company continues to win complex, civil and building projects. Its civil market is also likely to remain strong and the group will continue to contribute significantly to growth in the coming quarters.

The Civil segment will deliver strong results as the tunneling work on the Alaskan Viaduct has commenced and as the abovementioned projects ramp up.

Building segments and margins are also expected to grow over the next year, driven primarily by the additional phases of the Hudson Yards projects. The Specialty Contractors segment also continues to have a healthy pipeline of new project opportunities to the tune of about $3 billion.

Sylmar, Calif.-based Tutor Perini Corporation is a leading civil and building construction company offering diversified general contracting and design-build services to private clients and public agencies globally.

Tutor Perini currently retains a Zacks Rank #3 (Hold). Another stock in the building and heavy construction industry with a favorable Zacks Rank is Jiangsu Expressway Co. Ltd. with a Zacks Rank #2 (Buy).

One of Tutor Perini’s peers Chicago Bridge & Iron Company N.V. reported third-quarter 2013 adjusted earnings of $1.12 per share, in line with the Zacks Consensus Estimate. Adjusted earnings improved 33% year over year on the back of strong project activities during the quarter.

On the other hand, another peer Granite Construction Incorporated (GVA - Free Report) reported third-quarter 2013 earnings of 28 cents per share, a 70% drop year over year and way behind the Zacks Consensus Estimate of 78 cents.

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