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Great Lakes Gains on Improved Earnings - Analyst Blog

By: Zacks.com
Posted: 11/7/2013 9:30:00 AM
Referenced Stocks: CBI;GLDD;GVA;JEXYY

Shares of Great Lakes Dredge & Dock Corporation ( GLDD ) have gone up 3% since it reported on Nov 5 a year-on-year rebound to profit in its third quarter 2013. The dredging services provider reported earnings per share of 2 cents in the quarter, compared to year-ago quarter's loss of 9 cents. Strong performance in the dredging segment led to the improved earnings, which however fell short of the Zacks Consensus Estimate of 6 cents.

Operational Update


Sales increased 22% year over year to $198 million in the quarter, ahead of the Zacks Consensus Estimate of $185 million. Dredging revenues increased 12% to $155 million, driven by an increase in coastal protection revenue (up more than 150% year over year) mainly related to Superstorm Sandy work in New Jersey, New York and Delaware. In addition, a remediation project in the Midwest along with solid results in domestic capital and foreign dredging supported revenues in the quarter.

Demolition revenues surged 99% to $47 million in the quarter. The improvement was driven by $31.9 million of revenues generated by Terra Contracting in the quarter, which was partially offset by a decrease in other demolition revenues.

Gross profit during the quarter increased 185% to $22 million. Gross margin expanded 640 basis points to 11.2% in the quarter. In the Dredging segment, gross margin improved to 14.5% in the quarter from 8.3% in the last-year quarter, driven by an improved contract margin and higher revenues. On the other hand, the Demolition segment recorded negative gross margin of 0.5%, narrower than the negative 15.7% in the prior-year quarter, attributed to positive results at Terra.

General and administrative expenses surged 65% to $19 million, primarily due to additional legal and consulting costs related to the revenue recognition issues discovered at 2012 end, as well as the addition of Terra Contracting. Payroll and benefits costs also increased for select headcount additions, mainly to the legal and financial teams.

Adjusted operating income was $3.1 million, reversing the year-ago quarter's operating loss of $3.8 million. Including one time items, operating income in the quarter was $6.2 million compared to a loss of $3.7 million in the prior-year quarter.

Operating income in the dredging segment increased to an adjusted $9.9 million from $1.8 million in the prior-year quarter, driven by improved revenues and contract margin. The demolition segment reported an operating loss of $6.9 million compared with an operating loss of $5.5 million in the prior-year quarter. Negative gross margin and an increase in G&A expense due to additional legal, consulting and bad debt expense in the demolition business, and the addition of Terra at the end of 2012 led to the loss in the quarter.

Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) was $19.6 million, up 150% from the prior-year quarter.

Financial Update

At the end of the third quarter, Great Lakes had cash and cash equivalents of $41 million, down from $24.4 million as of 2012 end. Total debt increased to $297 million at the end of third quarter from $263 million as of 2012 end.

Total backlog as of the third quarter end stood at $606 million, up from $449 million as of 2012 end and $505 million as of the prior-year quarter end.

Our Take

The Dredging segment performed strongly in this quarter as compared to a slow second quarter. This momentum is expected to continue. Bidding activity was particularly strong in the quarter, bringing the year-to-date domestic dredging bid market total to $1.1 billion for the year, of which Great Lakes won 55%. Great Lakes will benefit from its record backlog and strong short-term bidding activity in the coming quarters.

The market has seen over $400 million in coastal protection work in 2013, primarily in response to Superstorm Sandy as well as an increase in capital projects. Great Lakes foresees numerous coastal restoration projects. The company expects more Sandy work will be up for biding in 2014 for long-term coastal protection projects.

The company is currently assessing strategic alternatives for its demolition business. The company intends to take a measured approach and selectively target those demolition and environmental remediation projects that it can execute well.

Great Lakes Dredge & Dock Corporation is the largest provider of dredging services in the United States. Great Lakes is also one of the largest U.S. providers of commercial and industrial demolition and remediation services, mainly in the Northeast. Great Lakes owns and operates the largest and most diverse fleet in the U.S. industry, comprising over 200 specialized vessels.

Rank & Peer Performance

Great Lakes currently holds a Zacks Rank #3 (Hold). Another stock in the building and heavy construction industry with a favorable Zacks Rank is Jiangsu Expressway Co. Ltd. ( JEXYY ), which carries a Zacks Rank #2 (Buy).

Among Great Lakes' peers, Chicago Bridge & Iron Company N.V. ( CBI ) reported third-quarter 2013 adjusted earnings of $1.12 per share, in line with the Zacks Consensus Estimate. Adjusted earnings improved 33% year over year on the back of strong project activities during the quarter.

On the other hand, another peer Granite Construction Incorporated ( GVA ) reported third-quarter 2013 earnings of 28 cents per share, a 70% drop year over year and way behind the Zacks Consensus Estimate of 78 cents.



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