Sterling Construction Co. Inc. (STRL) posted loss of 1 cent per share in the third quarter of 2013, narrower than the prior-year loss of 6 cents per share as well as the Zacks Consensus Estimate of a loss per share of 8 cents. Even though results remained in the red, Sterling fared better when compared to the loss per share of 93 cents in the second quarter and 39 cents loss incurred in the first quarter.
Improvements from the first and second quarter were aided by seasonally stronger revenues as well as improving composition of backlog, which led to substantial increase in gross profit.
Including the impact of the revaluation of a liability related to noncontrolling interest owners, quarterly loss was 6 cents per share compared with loss of 1 cent in the prior-year quarter.
Operational Update
Sales decreased 9% year over year to $186 million in the quarter, missing the Zacks Consensus Estimate of $205 million. The drop in revenues was due to the completion of several large projects in Utah, particularly the $1.1 billion I-15 CORE Reconstruction Joint Venture Project.
However, on a sequential basis, revenues increased 39.4%, reflecting gains in backlog in the first half of the year, and warmer weather in the third quarter, mainly in Utah, Nevada and Northern California.
Gross profit during the quarter was $8.3 million compared to gross profit of $14.1 million in the prior-year quarter. Gross margin was 4.5% compared to gross margin of 6.9% a year ago, a 240 basis points contraction. Compared to the second quarter of 2013, gross profit improved significantly given that the company had incurred a gross loss of $16.6 million in the quarter.
General and administrative expenses decreased 20% year over year to $8.2 million as a result of one-time hiring bonus and retirement payments for executive management in the prior-year quarter. Operating income in the reported quarter was $1.5 million compared with operating profit of $4.1 million in the prior-year quarter.
Bookings and Backlog
Backlog as of Sep 30, 2013 increased to $694 million compared with $714 million as of Jun 30, 2013. Bookings were $165 million, up 4.4% year over year and 7.1% sequentially.
Financial Update
Cash and cash equivalents were $5 million as of Sep 30, 2013, compared with $3.1 million as of Dec 31, 2012. Long-term debt amounted to $20.6 million as of Sep 30, 2013, compared with $24.2 million as of Dec 31, 2012. The debt-to-capitalization ratio remained flat at 10% as of Sep 30, 2013 compared with Dec 31, 2012.
Outlook
For the fourth quarter of 2012, Sterling Construction revenues are expected to be flat year on year. The company also expects improvement in bookings, both in terms of comparable quarter growth and profitability.
Sterling Construction expects its current mix of projects in backlog and the ones that are being targeted to lead to sustainable gross margin expansion over the coming year. General and administrative expenses will remain higher due to the ongoing investments for integration and future growth. It is anticipated that capital expenditure will be significantly lower as the current fleet will offer more than adequate capacity to support growth in 2014 and beyond.
Houston, Texas-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 retains a Zacks Rank #3 (Hold). Jiangsu Expressway Co. Ltd. (JEXYY) also belongs to the same industry and holds a Zacks Rank #2 (Buy).
One of Sterling Construction’s peers Chicago Bridge & Iron Co. (CBI) 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 Inc. (GVA) 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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