Tutor Perini’s 1Q Earnings Beat (CBI) (ORN) (TPC) (ZHEXY)

Tutor Perini Corporation (TPC) reported first-quarter 2013 net earnings of 31 cents per share, increasing almost fourfold from the year-ago adjusted earnings of 8 cents per share, surpassing the Zacks Consensus Estimate of 23 cents. Results were driven by increased revenue on the back of increased activity as well as reduction in general and administrative expenses.

Excluding discrete tax adjustments and a pre-tax loss on the sale of certain auction rate securities in the prior-year quarter, Tutor Perini reported a loss of 3 cents per share. The reported quarter did not note any such item.

Total revenue improved 9% year over year to $993 million, ahead of the Zacks Consensus Estimate of $975 million. The year-over-year improvement was driven by activity in new hospitality and gaming projects in Calif., Ariz., and Nev.; work performed in N.Y. in relation to the damage caused by Hurricane Sandy; and increased activity in a tunnel project in Washington.

Barring the Management Services, revenues improved across all the segments, led by Building with a 24% increase to $425 million, followed by Civil and Specialty Contractors both with a 13% rise to $284 million and $302 million. The Management Services suffered a 30% decline to $47 million.

Cost and Margins

Adjusted cost of sales increased 8% to $892 million. Gross profit increased 16% to $100 million. Gross margin improved 70 basis points (bps) to 10.1% in the quarter. General and administrative expenses decreased 7% to $64 million in the quarter. Operating profit increased 113% to $36 million. Operating margin expanded 170 bps to 3.6%.

Financial Updates

As of Mar 31, 2013, cash and cash equivalents were $132 million versus $168 million as of Dec 31, 2012. Cash from operating activities was an outflow of $84 million in the quarter compared with $25 million in the prior year quarter.

Long-term debt, excluding current portion, amounted to $737 million as of Mar 31, 2013, compared with $669 million as of Dec 31, 2012. The debt-to-capitalization ratio increased to 41% as of Mar 31, 2013, compared with 39% as of Dec 31, 2012.

Backlog and Pending Orders

Total backlog as of Mar 31, 2013 was $5.5 billion compared with $5.6 billion as of Dec 31, 2012. Backlog increased in the Civil, Specialty Contractors, and Management Services segments, offset by a decline in the Building segment. Additions to backlog worth mentioning during the quarter include two educational building projects in Calif. valued at $234 million, the construction contract for the Hudson Yards South Tower in N.Y, a $58 million transit signal modernization project in New York, and a $40 million federal facility in Miss.

In Apr 2013, Tutor Perini was identified as the lowest bidder for the initial segment of the California High-Speed Rail project (bid valued at approximately $985 million) and for the San Francisco Municipal Transportation Agency’s Third Street Light Rail Program Phase 2 – Central Subway project ($840 million). These two major pending civil awards are expected to add over $1.3 billion of backlog upon execution of the respective contracts. Including these two projects, Tutor Perini’s total volume of pending awards currently stands at $6.5 billion. This includes up to $3.7 billion in additional large phases of the Hudson Yards project, and various educational, hospitality and gaming, government, and bridge projects. These awards are expected to enter the Tutor Perini’s backlog over the next several quarters.

Outlook for 2013

The company expects earnings in the range of $1.65 to $1.90 per share. Revenue is expected to be within $4.5 to $5 billion.

Sylmar, Calif.-based Tutor Perini Corporation is a leading civil and building construction company offering diversified general contracting and design-build services to private clients and public agencies globally. The stock retains a short-term Zacks Rank #4 (Sell).

Other stocks to consider in the same industry with a favorable Zacks Rank are Chicago Bridge & Iron Company N.V. (CBI), Orion Marine Group, Inc (ORN) and Zhejiang Expressway Co. Ltd. (ZHEXY), which retain a Zacks Rank #2 (Buy).