MasTec Q2 Earnings Down Y/Y on Slowdown in Wireless Projects - Analyst Blog

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MasTec, Inc . ( MTZ ) reported adjusted earnings from continuing operations at 37 cents per share for the second quarter of 2014, down 18% from 45 cents in the year-ago quarter. The results were in line with the Zacks Consensus Estimate. Results were affected by slowdown in revenue growth of wireless projects. Including one-time items, earnings fell 12% to 37 cents per share from 42 cents in the prior-year quarter.

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Operational Update

MasTec's net sales increased 13% year on year to $1.104 billion in the quarter, in line with management's guidance but short of the Zacks Consensus Estimate of $1.11 billion.

Revenues at the Power Generation and Industrial segment incresaed 49% ti $95 million. Sales in the Oil and Gas segment increased 23% year over year to $366 million. Revenues in the Communication segment were up 6% to $528 million, affected by lower wireless project revenue growth levels. However, Electrical Transmission revenues decreased 3% year over year to $114 million.

Cost of sales in the quarter went up 16% year over year to $951 million. Gross profit declined 1% to $154 million from the year-ago quarter. Gross margin contracted 200 basis points to 13.9% in the quarter.

General and administrative expenses increased 5% year over year to $54 million. Operating profit declined 4% to $99 million in the quarter from $103 million in the prior-year quarter. Consequently, operating margin decreased 150 basis points (bps) year over year to 9%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was $106 million as against $110 million in the prior-year quarter.

Financial Details

As of Jun 30, 2014, MasTec reported cash and cash equivalents of $16 million versus $14 million as of Jun 30, 2013. Cash flow from operating activities was $55 million in the six month period ended Jun 30, 2014, compared with $23 million in the prior-year comparable period.

Long-term debt amounted to $1.09 billion as of Jun 30, 2014, compared with $765 million as of Dec 31, 2013. The debt-to-capitalization ratio rose to 50% as of Jun 30, 2014, from 43% as of Dec 31, 2013.

During the quarter, MasTec retired $115 million principal amount of senior convertible notes that matured in June and expanded its senior credit facility to $1 billion, while adding the capability to borrow in Mexican pesos.


For the third quarter, MasTec expects revenue of approximately $1.30-$1.35 billion. EBITDA is estimated at $132 million, while adjusted earnings per share are projected at 56 cents.

For 2014, MasTec expects revenue of $4.4 to $4.5 billion. Adjusted EBITDA was projected at $420-$425 million for the full year. The company expects adjusted earnings to lie within $1.55 to $1.58 per share.

MasTec's guidance reflects reduced levels of expected wireless project revenue in the second half of 2014, compared with the prior year. The company however anticipates returning to a more normalized level of wireless project revenue in 2015.

MasTec foresees excellent growth opportunities in oil & gas, electrical transmission, wireless, power generation and 1-gigabit fiber expansion. The company added that subsequent to quarter end, it was awarded a contract for approximately a quarter of a billion dollars of 1-gigabit fiber deployment work. The company stated that it is well positioned for growth in numerous markets throughout North America and expects 2015 to be a strong year both in terms of revenue growth and profit expansion.

Our Take

MasTec's recent acquisition of Pacer Construction will be help the company to expand in the growing Canadian energy infrastructure market, including oil sands, oil and gas, high-voltage electrical infrastructure and LNG markets. The expansion of MasTec's senior credit facility, backed by the company's strong cash flow, will provide it with financial flexibility to engage in strategic growth opportunities across North America. However, unexpected delays in wireless project spending, which affected the second quarter results, are expected to adversely impact the rest of the year as well.

Coral Gables, FL-based MasTec is a leading infrastructure construction company that operates primarily in North America and caters to a range of industries. Its services include engineering, building, installation, maintenance and upgrade of energy, utility and communications infrastructure as well as industrial infrastructure.

At present, MasTec has a Zacks Rank #4 (Sell).

Peer Performance

Among MasTec's peers, Chicago Bridge & Iron ( CBI ) posted second-quarter 2014 adjusted earnings of $1.36 per share, surpassing the Zacks Consensus Estimate of $1.27 per share by 7.1%. The adjusted earnings marked an increase of 30.8% from $1.04 a share reported in the prior-year quarter.

Primoris Services Corporation's ( PRIM ) second-quarter 2014 earnings increased 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.

Granite Construction Incorporated ( GVA ) reported earnings per share of 34 cents in the second quarter of 2014, increasing more than eight fold from the 4 cents earned in the year-ago quarter. Earnings per share also outperformed the Zacks Consensus Estimate of 24 cents.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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