Quanta Services Inc. (PWR) reported fourth-quarter 2013 non-GAAP earnings (excluding the one-time items) of 50 cents a share, beating the Zacks Consensus Estimate by 22%. However, quarterly earnings were down 2% from the prior-year quarter. Profits were primarily driven by increasing demand for the company’s services.
GAAP earnings per share were 77 cents, up 60% year on year.
Revenues
Total revenue for the quarter was $1.82 billion, up 8.6% from $1.67 billion in the prior-year quarter, aided by increased revenues from the company’s Electric Power and Oil & Gas Infrastructure segment. Quanta reported revenues across two of its three operating segments. Revenues were also well ahead of the Zacks Consensus Estimate of $1.7 billion.
Segment Details
Electric Powerrevenues in the quarter were $1.20 billion, up 2.1% from $1.18 billion in the prior-year period. The Electric Power segment continued to experience increased demand for electric transmission and distribution services, as the electric power industry is investing at record levels to upgrade and modernize North America's power grid. In addition, regulations to improve renewable interconnections and the impact of switching to gas generation are expected to continue to drive the power industry's investments and electric infrastructure over the long term.
Natural Gas and Pipeline Infrastructure Services segment (effective Dec 31, 2013, the company’s Natural Gas and Pipeline Infrastructure Services segment was renamed the Oil and Gas Infrastructure Services segment) revenues came in at $572.3 million, reflecting a 28.4% year-over-year increase. This growth was driven by increased revenues from projects related to unconventional shale developments in certain regions of North America. The company’s pipeline-gathering activity remains active and Quanta experienced increased demand for its mainline pipe construction services in 2013 and booked more than $700 million in contracts during the second half of 2013.
Fiber Optic Licensingrevenues declined 15.5% to $40.3 million from $47.8 million in the comparable quarter last year. The decline in revenues was primarily attributable to decline in telecom service revenues.
Income and Expenses
Operating income in the quarter was $149.4 million compared with $160.8 million in the prior-year quarter, reflecting a decline of 7.1%. SG&A expense was $143 million compared with $117 million in the comparable quarter last year.
Cash Flow and Balance Sheet
Exiting the year, cash and cash equivalents were $488.8 million and shareholders’ equity was $4.2 billion. Operating cash flow from continuing operations was about $447 million for 2013. Capital expenditures were about $249 million, while free cash flow for 2013 was approximately $198 million. This compares with $30 million in negative free cash flow in 2012.
Acquisitions and Share Repurchases
During the first quarter of 2014, Quanta acquired five companies, of which four are electric power infrastructure services companies based in Canada, while the fifth company is a general engineering and construction company specializing in hydrant fueling, waterfront and utility construction for the U.S. Department of Defense and civilian applications. These five acquisitions totaled $79.9 million in cash and approximately $36.6 million in Quanta’s common stock and shares of a Canadian subsidiary of Quanta that are exchangeable for shares of Quanta’s common stock.
This apart, in Dec 2013, the board of directors authorized a repurchase program of up to $500 million of Quanta's common stock through Dec 2016.
Outlook
Quanta is positive about its performance going forward. It expects revenues for the first quarter of 2014 in the range of $1.65 billion to $1.75 billion. On a GAAP basis, the company expects earnings to be in the range of 36 cents to 38 cents.
The GAAP earnings per share (EPS) guidance for the first quarter of 2014 includes an estimate of $7.8 million for non-cash stock-based compensation expenses and $8.2 million for amortization expenses. Excluding these expenses, the non-GAAP adjusted earnings from continuing operations for the first quarter of 2014 is expected to be in the range of 41 cents to 43 cents, versus 38 cents reported in the first quarter of 2013.
Full-year 2014 revenues are expected in the range of $7.4 billion to $7.8 billion, while earnings on GAAP basis are expected in the range of $1.65 to $1.85.
GAAP EPS forecast for 2014 includes an estimate of $35.3 million for non-cash stock-based compensation expenses and $33.1 million of amortization expenses. Excluding these expenses and others, non-GAAP adjusted earnings for 2014 are expected to be between $1.85 and $2.05, compared with $1.71 in 2013.
Capital expenditures for 2014 are expected in the range of $300 million to $325 million, which includes expenditures of about $50 million to $60 million for the Fiber Licensing and Other segment.
Quanta currently holds a Zacks Rank #2 (Buy). Some other players operating in the same industry and worth considering are Orion Marine Group Inc. (ORN), AECOM Technology Corp. (ACM) and Altra Industrial Motion Corp. (AIMC), all of which carry a Zacks Rank #2.
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