Combined Backlog Hits All-Time High of $1.2 billion at a Record 9.1% Gross Margin
Q2’19 Results and FY’19 Guidance Impacted by Weather and Delayed Project Starts
THE WOODLANDS, TX – August 5, 2019 – Sterling Construction Company, Inc. (NasdaqGS: STRL) (“Sterling” or “the Company”) today announced financial results for the second quarter of 2019.
Consolidated Second Quarter 2019 Financial Results Compared to Second Quarter 2018:
Consolidated Financial Position, Liquidity and Cash Flows at June 30, 2019:
During the second quarter, severe weather conditions, especially in the Texas market, significantly hampered the execution of existing projects, delayed the starts of new projects, and impeded our residential business. As a result, second quarter 2019 revenues decreased $4.6 million compared to the prior year quarter, primarily driven by a $9.5 million decrease in residential construction. Additionally, notice to proceed on several significant new heavy civil projects has been delayed and the projects are now expected to ramp-up in late 2019 or early 2020.
Gross profit was $25.5 million in the second quarter of 2019, a decrease of $5.6 million from the prior year second quarter. Gross margin declined 190 basis points to 9.7%, which was driven by lower revenues from our higher margin residential construction segment and a lower margin mix of heavy civil construction projects.
General and administrative expenses were $10.8 million in the second quarter of 2019, or 4.1% of revenues compared to $13.2 million or 4.9% of revenues in the second quarter of 2018, reflecting better leverage across the enterprise.
Heavy Civil Construction Backlog Highlights
CEO Remarks and Outlook
“Severe weather conditions caused our second quarter results to come in below our expectations,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “While our Heavy Civil revenues increased compared to the same period last year and our combined backlog is at a record high, we have yet to realize the growth in both revenue and margin that we expect to see out of this backlog. The growth in the segment’s top and bottom line was impacted by the delayed start of several large projects, on top of an already challenging year-over-year comparison given that the second quarter of 2018 included substantial work on two sizable JV projects which were completed in late 2018. Additionally, we expect these delayed projects to commence before the end of the year or early 2020, benefiting our outlook for 2020. Notably, our Combined Backlog and the gross margin in backlog are both at an all-time high level, providing us with several quarters of strong visibility for our Heavy Highway business.”
Mr. Cutillo continued, “Our Residential segment lost 30 days due to rain in the quarter. Although these delays in our Residential segment caused us a large revenue decline versus our expectation, our team was still able to maintain operating margins and claw back enough production to get close to our prior year's operating income with $9.5 million less revenue. On top of that, they hit an all-time new record in July for slabs completed once the weather returned to normal.”
Mr. Cutillo concluded, “Despite our record high backlog, our record high margins in backlog, and our Residential segment's very strong performance in July, the set back in the second quarter coupled with the delayed starts of several Heavy Civil projects has caused us to temper our full year expectations for 2019. We now expect revenues of between $1.010 billion and $1.025 billion and net income attributable to Sterling common stockholders of $27 million to $29 million. Even with this adjustment in our outlook, the mid-point of our guidance still represents a double-digit percentage increase in our net income as compared to 2018. With our robust backlog, increasing margin profile and favorable end market outlook, we anticipate a strong second half of 2019 and our outlook for 2020 has become increasingly positive for both top and bottom-line growth, which we expect to lead to greater value for our shareholders.”
Sterling is a construction company that specializes in heavy civil infrastructure construction and infrastructure rehabilitation as well as residential construction projects. The Company operates primarily in Arizona, California, Colorado, Hawaii, Nevada, Texas and Utah, as well as other states in which there are feasible construction opportunities. Heavy civil construction projects include highways, roads, bridges, airfields, ports, light rail, water, wastewater and storm drainage systems, foundations for multi-family homes, commercial concrete projects and parking structures. Residential construction projects include concrete foundations for single-family homes.
Important Information for Investors and Stockholders
Cautionary Statement Regarding Forward-Looking Statements
This press release contains statements that are considered forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our: business strategy; financial strategy; and plans, objectives, expectations, forecasts, outlook and intentions. All of these types of statements, other than statements of historical fact included in this press release, are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology. The forward-looking statements contained in this press release are largely based on our expectations, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this press release are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to factors listed in the “Risk Factors” section in our filings with the U.S. Securities and Exchange Commission (“SEC”) and elsewhere in those filings. The forward-looking statements speak only as of the date made, and other than as required by law, we do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
Sterling Construction Company, Inc.
Ron Ballschmiede, Chief Financial Officer
|Investor Relations Counsel:
The Equity Group Inc.
Fred Buonocore, CFA 212-836-9607