Shares of Primoris Services Corporation (PRIM) gained over 3% and closed at $27.76 a day after the company reported its second-quarter 2014 earnings on Aug 7. Earnings increased around 3.3% year over year to 31 cents per share from 30 cents in the year-ago quarter. The results were in line with the Zacks Consensus Estimate.
Operational Update
Revenues in the quarter increased 15.8% year over year to $515 million. The results were ahead of the Zacks Consensus Estimate of $499 million. The year-over-year rise was driven by increased revenues at East Construction Services segment and Engineering segment, partly offset by decrease in revenue in the West Construction Services segment.
Cost of sales rose 17.8% to $454 million from $385 million in the year-ago quarter. Gross profit improved 2.8% year over year to $61 million. However, gross margin contracted 150 basis points (bps) year over year to 11.9%.
Selling, general and administrative expenses went up 5% year over year to $33 million. Operating profit remained flat at $28 million compared with the prior-year quarter. However, operating margin contracted 90 bps year over year to 5.4%.
Segment Performance
East Construction Services: Net sales surged 58.5% to $278 million compared with $175.4 million in the year-ago quarter. Gross profit rose 40% to $21 million from $15 million in the year-ago quarter.
West Construction Services: Sales went down 13.1% year over year to $224.4 million. The segment’s gross profit also declined 9.8% year over year to $37.8 million.
Engineering: Net sales grew 12.4% year over year to $12.8 million. Gross profit however declined to $2.1 million from $2.4 million in the year-ago quarter.
Financial Update
Primoris ended the quarter with cash and cash equivalents of $160.2 million versus $196.1 million as of 2013-end. As of Jun 30, 2014, long-term debt decreased to $185.6 million from $191 million as of Dec 31, 2013. The debt-to-capitalization ratio contracted to 33.8% as of Jun 30, 2014, from 35.5% as of Dec 31, 2013.
On Aug 5, 2014, Primoris announced a 14.3% increase in the quarterly dividend to 4 cents per share from 3.5 cents per share. The dividend will be paid on Oct 15, 2014 to shareholders of record on Sep 30, 2014.
Total backlog was $1.83 billion as of Jun 30, 2014 against $1.94 billion as of Dec 31, 2013.
During the next four quarters, Primoris is expected to realize revenues of around 50% of the East Construction Services segment backlog, about 93% of the West Construction Services segment backlog and 40% of the Engineering segment backlog.
Primoris witnessed a solid second quarter, with strong revenue growth in several end markets, especially in its operations on the Gulf Coast. The company remains optimistic about second half of the year.
In addition, the abundance of shale gas will drive the need for new energy and petrochemical infrastructure. The company also remains optimistic on strong its balance sheet which will provide the flexibility to continue investing in external and internal opportunities. However, environmental constraints, such as a longer permitting process continue to affect the energy business causing delays in projects.
Dallas, TX-based Primoris is a specialty contractor and infrastructure company that serves diverse-end markets. The company also provides a wide range of construction, fabrication, maintenance, replacement, water and wastewater as well as engineering services to major public utilities, petrochemical companies, energy companies, municipalities and other customers.
Primoris currently has a Zacks Rank #3 (Hold). However, some better-ranked stocks in the sector include Boise Cascade Company (BCC), RPM International Inc. (RPM) and Winnebago Industries, Inc. (WGO). All these stocks carry a Zacks Rank #2 (Buy).
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