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Great Lakes Dredge & Dock Shares Fall on Q2 Earnings Miss

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Shares of Great Lakes Dredge & Dock Corporation dropped over 1% and closed at $7.13 after yesterday’s trading session following the release of its second-quarter 2014 results on Aug 5. The dredging services provider reported earnings per share of 6 cents in the quarter, flat year over year. Reported earnings missed the Zacks Consensus Estimate of 10 cents per share.

Operational Update

Sales improved 25.5% year over year to $185 million in the quarter driven by increased activity in all domestic markets. However it lagged the Zacks Consensus Estimate of $190 million.

Dredging revenues increased 15% to $157 million, driven by higher maintenance and rivers & lakes revenue partially offset by lower foreign revenue. Environmental & remediation segment’s revenues were at $29.3 million, increasing nearly three-fold from the year ago quarter driven by the inclusion of several large-scale projects.

Gross profit during the quarter grew 90% to $26 million from $13.8 million in the year-ago quarter. Gross margin expanded 480 basis points to 14.2% in the quarter as a result of improved contract margin, attributed to improved project execution on several contracts.

General and administrative expenses went up 3.7% year over year to $15.9 million. Adjusted operating income was $10.3 million, down from $11.6 million in the year-ago quarter. Operating margin was 5.6%, against 8% in the year-ago quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from continuing operations stood at $19.8 million, declining 9.9% from $22 million in the second quarter of 2013.

Gross margin was 14.4% in the dredging segment compared with 9.1% in the year-ago quarter. Gross margin increased primarily due to strong contract margin on several jobs, somewhat offset by higher fixed costs. Gross margin in the Environmental & Remediation segment was 12.4% slightly increasing from 12% in the prior-year quarter.

Financial Update
Great Lakes Dredge & Dock ended the quarter with cash and cash equivalents of $38.1 million versus $75.3 million as of 2013-end. As of Jun 30, 2014, long-term debt remained flat at $285 million compared with Dec 31, 2013. Total backlog as of Jun 30, 2014 was $508 million, down 1% from the backlog of $514 million as of Jun 30, 2013.


Great Lakes Dredge & Dock expects strong fleet utilization in the second half of the year. The company will be utilizing its fleet on the Port Miami deepening, the Delaware River deepening in Illinois and several maintenance projects in the Gulf region. Great Lakes Dredge & Dock expects majority of the environmental & remediation segment’s backlog to be completed in 2014. Moreover, the company remains optimistic about increase in bidding activity, which will add to backlog.

Further, the approval of Water Resources Reform and Development Act is a positive catalyst for the domestic dredging industry and will also assist in the company’s long-term growth.

Four vessels of Great Lakes Dredge & Dock will be utilized for the $35.5 million land reclamation job in the Middle East. The company also expects the Wheatstone project in Australia to continue into early 2015.

Our Take

Great Lakes Dredge & Dock will benefit from capital projects, including the Port Miami deepening, coastal protection projects and maintenance dredging. The company’s continuous focus on managing working capital and free cash will also drive growth. However, the company remains concerned about the uncertain weather conditions and fluctuations in currency exchange rate which will affect revenues in the future.

Great Lakes Dredge & Dock Corporation is the largest provider of dredging services and also one of the largest providers of commercial and industrial demolition and remediation services, in the U.S., mainly in the Northeast. Great Lakes Dredge & Dock owns and operates the largest and most diverse fleet in the U.S. industry, comprising over 200 specialized vessels.
Great Lakes Dredge & Dock currently holds a Zacks Rank #4 (Sell). However, some better-ranked stocks in the sector include Quanex Building Products Corporation (NX - Free Report) , Boise Cascade Company (BCC - Free Report) and PGT, Inc. (PGTI - Free Report) . All these stocks carry a Zacks Rank #2 (Buy).

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