ARB Inc., a unit of the West Construction Services segment of Primoris Services Corporation PRIM, declared a new three-year Master Service Agreement (MSA) worth $45 million from a major utility customer.
Scope of the contract involves gas distribution work in four regions, ranging from central California up to the Oregon border. The contract, secured by the underground division of ARB, comprises the replacement of Aldyl-A low pressure distribution mains and services and reinstallation of public streets, walkways and private property to their original condition.
Work under the contract, which is expected to extend beyond the initial three years, is likely to commence in Apr 2015. Primoris anticipates the MSA will generate approximately $15 million per year.
Primoris witnessed a dismal fourth-quarter 2014 with decline in earnings and revenues. Reduction in revenues was mainly due to decreased sales in the West Construction Services segment. 2014 revenues also decreased year over year, primarily at the ARB Underground division due to reduced revenues from traditional MSA customers and decline of one-time projects. However, Primoris remains optimistic about large capital replacement programs and integrity plans which will aid growth in the utility market and in turn assist growth in revenues.
During the next four quarters, Primoris is expected to realize revenues of around 40% from the East Construction Services segment backlog, about 100% from the West Construction Services segment backlog and 95% from the Engineering segment.
Primoris will also benefit from inorganic growth as the company has recently acquired the assets of Aevenia, a subsidiary of Otter Tail Corporation OTTR, an energy and electrical construction company for $23 million. The buyout will help in widening Primoris’ existing offerings and expanding into new geographies in the Midwest.
Though increasingly stringent regulatory and environmental requirements for infrastructure improvements and significant reduction in oil prices in the last half of 2014 have created uncertainty, Primoris believes that its financial and operational capabilities will meet the short-term challenges.
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 #5 (Strong Sell). Stocks to consider in the sector are Dycom Industries Inc. DY and Quanex Building Products Corporation NX, both carrying a Zacks Rank #1 (Strong Buy).
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