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Primoris Services Lags Q4 Earnings on Reduced Margins - Analyst Blog

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Primoris Services Corporation'sPRIM fourth-quarter 2014 earnings plunged 61% year over year to 17 cents per share due to decline in revenues and margins. Earnings also trailed the Zacks Consensus Estimate of 50 cents.

Shares of Primoris hit a new 52-week low of $16.90 and eventually closed at $17.22 on Mar 3, following its sluggish fourth-quarter results.

Primoris Services Corporation - Earnings Surprise | FindTheCompany

Operational Update

Revenues in the quarter dipped 9.4% year over year to $488 million, falling short of the Zacks Consensus Estimate of $629 million. The year-over-year decline in revenues was mainly due to decreases sales in the West Construction Services segment.

Cost of sales fell 5.4% to $438 million from $463 million in the year-ago quarter. Gross profit crashed 33.8% year over year to $49.6 million. Gross margin contracted 370 basis points (bps) year over year to 10.2%.

Selling, general and administrative expenses went down 2.8% year over year to $33 million. Operating profit declined significantly to $16.5 million compared with $40.8 million in the prior-year quarter. Consequently, operating margin declined 380 bps year over year to 3.8%.

Segment Performance

East Construction Services: Sales improved 12.9% year over year to $129 million led by increased revenues at JCG Heavy Civil division. However, the segment's gross profit declined significantly to $1.2 million from $4.7 million in the prior-year quarter.

West Construction Services: Net sales decreased 33% to $216.3 million from $323 million in the year-ago quarter owing to declines at the ARB Industrial division and Rockford. Gross profit plunged 52% to $27.7 million from $57.6 million in the year-ago quarter.

Energy: Net sales grew 41.7% year over year to $142.4 million driven by extensive increases across the various Energy segment subsidiaries. Gross profit surged nearly two-fold to $20.7 million from $12.6 million in the year-ago quarter due to increased revenues and rise in profitability at the PES JCG Industrial division and PES Saxon.

Financial Update

Primoris had cash and cash equivalents of $139.5 million at the end of 2014 compared with $196 million as of 2013-end. The company generated cash flow from operations of $36 million in 2014, compared with $77.8 million at 2013-end.

Long-term debt, excluding the current portion, was $204 million as of Dec 31, 2014, compared with $191 million as of Dec 31, 2013. Debt-to-capitalization ratio was 34.9% as of Dec 31, 2014 compared with 35.5% as of Dec 31, 2013.

Total backlog was $2 billion as of Dec 31, 2014 against $1.94 billion as of Dec 31, 2013. 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 settled the North Texas Tollway Authority (NTTA) lawsuit during the quarter. The agreement settles all claims and disputes related to 1999 work on the George Bush Turnpike.

Primoris also announced the acquisition of the assets of Aevenia, a subsidiary of Otter Tail Corporation OTTR , an energy and electrical construction company for worth $23 million. The buyout will help in developing Primoris' existing offerings and expanding new geographies in the Midwest.

2014 Performance

Primoris posted earnings of $1.22 per share for 2014, which decreased 9.6% year over year. Earnings also missed the Zacks Consensus Estimate of $1.55 per share.

Revenues for the full year increased 7.3% to $2.086 billion from $1.944 billion in 2013. Revenues lagged the Zacks Consensus Estimate of $2.229 billion.

Our Take

Although, Primoris witnessed dissatisfactory results in the fourth quarter, demand for improved and expanded oil & gas and petrochemical infrastructure will drive growth in 2015.

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 #4 (Sell). However, better-ranked stocks in the sector are Dycom Industries Inc. DY and Acuity Brands, Inc. AYI , both carrying a Zacks Rank #1 (Strong Buy).

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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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