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MasTec (MTZ) Stock Down More Than 7% Despite Q3 Earnings Beat

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Despite reporting better-than-expected results in third-quarter 2019, MasTec, Inc.’s (MTZ - Free Report) shares declined more than 7% in the after-hour trading session on Oct 31.

Worryingly, the company projects year-over-year lower revenues in the fourth quarter due to softness in the Oil & Gas business, thanks to regulatory delays on a large project, which caused shifts in construction activity and revenues to 2020.

Let’s Delve Deeper

MasTec reported adjusted earnings per share of $1.73, which surpassed the Zacks Consensus Estimate of $1.63 by 6.1% and exceeded its bottom-line expectation by 11 cents. Also, on a year-over-year basis, the metric grew 30.1% from the prior-year figure of $1.33.

MasTec, Inc. Price, Consensus and EPS Surprise

Revenues of $2.02 billion missed the consensus mark of $2.13 billion by 5.2% but grew 2% year over year. The upside was mainly driven by strong demand, favorable market conditions and improved pricing. However, lower contribution from the Oil & Gas business partially offset the positives.

At the end of the third quarter, the company reported 18-month backlog of $7.5 billion, down $300 million from the corresponding period of last year. Meanwhile, the backlog does not include awards worth nearly $700 million signed during the quarter that are estimated to be realized after 18-month period.

Segment Update

Revenues from Communications grew 2.7% year over year to $679.5 million. Adjusted EBITDA margin, however, contracted 290 basis points (bps) to 8.4%.

Electrical Transmission segment’s revenues came in at $103 million, up 3.9% from the year-ago quarter. Adjusted EBITDA margin came in at 7.6%, up 450 bps from the year-ago period.

Power Generation and Industrial’s revenues surged a notable 45.7% year over year to $261.7 million. However, adjusted EBITDA margin fell 450 bps from the prior-year quarter to 0.9%.

Revenues from the Oil and Gas segment fell 6.1% from a year ago to $972.5 million. Nonetheless, adjusted EBITDA margin improved an impressive 690 bps to 21.9%.

Operational Update

General and administrative expenses declined 10.4% from the prior-year quarter to $77.1 million. The company’s adjusted EBITDA of $252.1 million was up 11% from the prior-year period. Adjusted EBITDA margin also surged 110 bps to 12.5%.

Financial Details

MasTec reported cash and cash equivalents of $43.1 million as of Sep 30, 2019 compared with $27.4 million at 2018-end.

The company provided $441.4 million of cash from operating activities in the first nine months of 2019 compared with $26.8 million in the comparable year-ago period.

2019 Guidance Updated

Backed by strong results in the third quarter, great visibility and strong demand across segments, and favourable market conditions, MasTec upwardly revised adjusted EBITDA and earnings projection. Adjusted EBITDA is now projected to be $842 million versus $836 million expected earlier. Moreover, adjusted EBITDA margin is expected to be 11.7% compared with 10.9% projected earlier. Adjusted earnings per share are now anticipated to be around $5.16 ($3.77 in 2018) versus $5.04 expected earlier.

However, revenues are now expected to be roughly $7.2 billion compared with prior projection of $7.7 billion. The lower revenue guidance reflects the absence of a large project in the Oil & Gas business.

Fourth-Quarter View

MasTec expects revenues to be $1.7 billion, indicating a decline from $1.92 billion reported a year ago. Adjusted EBITDA is expected to be $209 million, with margin forecast of 12.3%. This compares favorably with the year-ago adjusted EBITDA of $195.8 million and margin of 10.2%. Adjusted earnings per share are anticipated to be $1.25, indicating growth of 16.8% from $1.07 reported in 2018. The Zacks Consensus Estimate for the same is in line with its expectation.

Zacks Rank & Peer Release

MasTec — which shares space with Dycom Industries, Inc. (DY - Free Report) and Sterling Construction Company, Inc. (STRL - Free Report) in the same industry — currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

EMCOR Group Inc. (EME - Free Report) reported solid results in third-quarter 2019. Adjusted earnings and revenues surpassed the respective Zacks Consensus Estimate, and improved year over year. The solid performance was mainly driven by strong project execution across the business. Backed by the solid performance, favorable project mix, and strong underlying market conditions, EMCOR has raised its full-year 2019 guidance for revenues as well as earnings.

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