Shares of Primoris Services CorporationPRIM fell nearly 0.9% and closed at $19.09 on May 6, a day after the company reported disappointing first-quarter 2015 results. Primoris' earnings plunged 86% year over year to 3 cents per share and also missed the Zacks Consensus Estimate of 13 cents, a negative surprise of 77%, due to unusually wet weather, especially in Texas and the Gulf Coast region. Earnings were also impacted by continued uncertainty in the energy market.
Revenues in the quarter dipped 16% year over year to $393 million, falling short of the Zacks Consensus Estimate of $418 million. The year-over-year decline in revenues was mainly due to severe winter weather.
Cost of sales fell 15.6% to $354.8 million from $420 million in the year-ago quarter. Gross profit crashed 23.7% year over year to $38 million due to decrease in revenues. Gross margin contracted 90 basis points (bps) year over year to 9.7%.
Selling, general and administrative expenses increased 13.6% year over year to $33.8 million. Operating profit declined significantly to $4.2 million from $20 million in the prior-year quarter. Consequently, operating margin dropped 320 bps year over year to 1.1%.
East Construction Services: Sales improved 15.6% year over year to $123.7 million led by increased revenues at JCG I&M division from a large petrochemical project in Louisiana as well as increased Florida work which were partly offset by declines in JCG Heavy Civil division revenues. Segment's gross profit also increased to $9.1 million from $6.6 million in the prior-year quarter reflecting the higher margin petrochemical work at the JCG I&M division.
West Construction Services: Net sales decreased 20% to $186.3 million from $234 million in the year-ago quarter. Revenue growth at Rockford from a large pipeline project in the Houston was offset by revenue declines owing to absence of ARB Industrial division's completion of a large solar power project in 2014. Gross profit plunged 32% to $21.4 million from $31.7 million in the year-ago quarter. The decrease in gross profit was primarily the result of work shutdowns due to poor weather as well as the completion of a higher margin pipeline and natural gas power projects in the prior-year quarter.
Energy: Net sales decreased 36% year over year to $82.7 million impacted by completion of projects that were active in the first quarter 2014. Weather delays and the uncertainties associated with the significant decrease in crude oil prices also impacted work at the pipeline and Saxon divisions. Gross profit slumped nearly two-fold to $7.4 million from $11.3 million in the year-ago quarter due to decreased revenues.
Primoris ended the quarter with cash and cash equivalents of $106 million compared with $139.5 million as of 2014-end. The company generated cash flow from operations of $2 million during the quarter, versus cash usage of $21.7 million in the year-ago quarter.
Long-term debt, excluding the current portion, was $202.6 million as of Mar 31, 2015, compared with $204 million as of Dec 31, 2014. Debt-to-capitalization ratio remained flat at 34.9% as of Mar 31, 2015 with the amount as of Dec 31, 2014.
Total backlog was a record of $2.14 billion as of Mar 31, 2015 against $2 billion as of Dec 31, 2014. During the next four quarters, Primoris is expected to realize revenues of around 53% from the East Construction Services segment backlog, about 73% from the West Construction Services segment backlog and 98% from the Energy segment.
On May 1, 2015, Primoris increased its quarterly cash dividend by 37.5% to 5.5 cents per share from 4 cents. The new dividend will be paid on Jul 15, 2015, to shareholders of record on Jun 30, 2015.
Primoris will also benefit from inorganic growth as the company recently acquired the assets of Aevenia, a subsidiary of Otter Tail Corp. OTTR , an energy and electrical construction company for $23 million. The buyout will help in widening Primoris' existing offerings while expanding into new geographies in the Midwest.
Primoris will benefit from increase in backlog, the diversity of the new project awards, and the level of bidding activity. The drivers for industrial, utility, power and pipeline markets remain positive, which will also drive Primoris's growth. Moreover strong balance sheet position and acquisition prospects will strengthen the company's performance.
However, increasingly stringent regulatory and environmental requirements for infrastructure improvements and significant reduction in oil prices since the last half of 2014 have created uncertainty, and will remain headwinds in the near-term.
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.
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