North American Construction Group Ltd. or NACG (NOA - Free Report) reported fourth-quarter 2018 results, wherein adjusted earnings came in at 8 cents per share, in line with the Zacks Consensus Estimate. The reported figure increased 11% from the year-ago quarter. The upside was driven by improved margins and robust top-line performance.
North American Construction Group Ltd. Price, Consensus and EPS Surprise
The company generated revenues of C$131 million, improving 60% year over year. The positive performance mainly stemmed from higher volume and improved productivity on its winter work programs.
In 2018, NACG’s backlog via term contracts came in at approximately C$1.2 billion compared with less than C$0.1 billion a year ago.
Gross profit during the quarter grew 52.5% from the prior-year quarter to C$18.3 million. The upside was mainly driven by higher volume and improved productivity on its winter works programs at the Mildred Lake mine during the quarter. The positive performance was also driven by improved margins on its civil construction activities at multiple mine sites compared with a year ago.
However, gross margin contracted 60 basis points (bps) to 14% due to an increase in equipment costs, which resulted from flared inspection and repair expenses. Also, wind-down of mine support activities and the ramp-up of winter road construction activity in Northern Canada added to the woes.
General and administrative expenses (excluding stock-based compensation), as a percentage of revenues, improved 90 bps to 6.1% from the prior-year figure of 7%. The improvement reflects the company’s ability to absorb higher volumes of activity with limited increases to its overheads.
The company’s operating income was C$7.5 million during the quarter, significantly higher than C$4.5 million in the prior-year period. Operating margin was 5.7%, up 20 bps from the prior-year figure of 5.5%.
However, its adjusted EBITDA margin declined 40 bps despite a year-over-year increase of 56.9% in adjusted EBITDA to C$28.4 million.
On Dec 18, 2018, NACG exercised its right, under a right of first refusal option in the newly extended Multiple Use Agreement with a customer, on an initial offering of 31 trucks for delivery in 2019. The deal included 16 ultra-class haul trucks with 380-ton capacity.
On Dec 10, 2018, it announced a three-year extension of a key Multiple Use Agreement with a major oil sands operator. The agreement was formed for the performance of reclamation, overburden removal, mine support services and civil construction activities.
In November 2018, the company opened its newly constructed C$28.0-million Acheson major equipment maintenance and rebuild facility in Edmonton, Alberta. The facility is custom designed to accommodate all sizes of equipment, including ultra-class 400-ton haul trucks.
It entered into a partnership with the Mikisew Group of Companies, in order to provide construction and mining services to oil sands customers. The Mikisew Group of Companies is directly owned by the Mikisew Cree First Nation, the largest First Nation of the five Athabasca Tribal Nations.
On Nov 23, 2018, the company purchased a fleet of heavy construction equipment for C$198 million.
As of Nov 1, 2018, NACG closed the acquisition of an Edmonton, Alberta-based Nuna Logistics Limited and related companies or Nuna, a civil construction and contract mining company, for C$42.8 million in cash.
Full-Year 2018 Highlights
In full-year 2018, NACG’s revenues and EBITDA grew 40% and 61% respectively, surpassing its target of 15% for both measures.
Buoyed by solid three-year growth plan and strategic acquisitions, NACG has provided its view for full-year 2019 revenues and EBITDA.
The company expects revenues to improve approximately 70% and adjusted EBITDA by 60%, which may drive earnings per share to more than C$1.60 in 2019. Moreover, the company projects adjusted EBITDA to be nearly 30%, 20%, 22% and 28%, respectively, in the first, second, third and fourth quarter of 2019.
Meanwhile, the company remains confident about its work linked to oil sands production and anticipates 75% of revenues to be driven by the same.
Zacks Rank & Stocks to Consider
Currently, NACG holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector include Great Lakes Dredge & Dock Corporation (GLDD - Free Report) , EMCOR Group, Inc. (EME - Free Report) and Comfort Systems USA, Inc. (FIX - Free Report) . While Great Lakes sports a Zacks Rank #1 (Strong Buy), both EMCOR and Comfort Systems carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Great Lakes, EMCOR and Comfort Systems’ earnings for the current year are expected to increase 170.6%, 6.3% and 10%, respectively.
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