On 11 March 2020, Sterling Construction Company (NASDAQ: STRL) stock identified change of 7.41% away from 52-week low price and recently located move of -53.57% off 52-week high price. It has market worth of $245.55M. STRL stock has been recorded -39.79% away from 50 day moving average and -40.12% away from 200 day moving average. Moving closer, we can see that shares have been trading -35.03% off 20-day moving average.

Sterling Construction Company, Inc. (STRL) recently reported financial results for the fourth quarter and full year ended 2019.

Business Overview

With the acquisition of Plateau, the Company has added a third diversified platform for growth and has realigned its operating sections to reflect management’s present oversight of operations. Sterling’s operations now consist of three reporting sections: Heavy Civil, Specialty Services and Residential. The Company’s commercial business has been reclassified from the Heavy Civil section into our newly formed Specialty Services reporting section together with the Plateau operations. The section information for the previous periods presented has been recast to conform to the current presentation.

Fourth quarter 2019 revenues increased $91.4M contrast to the previous year quarter, primarily driven by $84.6M generated from Plateau.

Gross profit was $33.6M in the fourth quarter of 2019, a raise of $5.4M from the previous year fourth quarter. Gross margin declined 135 basis points to 9.7%, partly offset by the inclusion of three months of gross profit from Plateau operations in 2019.

In the quarter, Sterling was able to come to an interim contract related to a 2014 project involving the construction of three separate bridges in Texas that had suffered from important schedule delays and cost overruns Because of major owner design flaws. This contract enabled Sterling to recover about $17M in costs to date related to these delays and defined a better dispute resolution process together with agreed upon rates for potential future delays. As part of this contract, Sterling agreed to work on all three bridges simultaneously (versus doing one at a time) to accelerate the final completion schedule. This revised schedule has importantly increased the amount of labor, equipment and infrastructure required to complete the project under the new terms of the contract and resulted in a reduction of gross profit in the quarter of $10.2M, or $0.36 per diluted share.

General and administrative expenses were $16.9M in the fourth quarter of 2019, or 4.9% of revenues contrast to $13.0M or 5.1% of revenues in the fourth quarter of 2018, reflecting incremental general and administrative expenses attributable to the Plateau acquisition of $3.0M.

Heavy Civil and Specialty Services Backlog Highlights

  • Combined Backlog at December 31, 2019 was $1.3B, up from $1.1B at December 31, 2018. Combined Backlog consists of $1.1B of Backlog and $273.5M of unsigned contracts as of December 31, 2019 contrast to $850.7M and $292.7M at December 31, 2018, respectively. At December 31, 2019, $164.5M of our Backlog is attributable to Plateau. No residential construction contracts are included in Backlog.
  • Total margin in Backlog has increased about 300 basis points, from 8.5% at December 31, 2018 to 11.5% at December 31, 2019. About two-thirds of the gross margin improvement relates to the inclusion of Plateau’s Backlog with the other one-third improvement driven by the Sterling legacy businesses. Combined Backlog gross margin improved from 8.9% at December 31, 2018 to 11.0% at December 31, 2019.

CEO Remarks and Outlook

“Our fourth quarter concluded another outstanding year for Sterling, including the transformative acquisition of Plateau, which we closed on October 2nd,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “As anticipated, Plateau was immediately accretive to our fourth quarter results and propelled our Backlog to a record level, positioning us for profitable growth in 2020. After only three months as part of our business portfolio, we are extremely happy by the quality of Plateau’s management team, its high level of operational discipline and the attractiveness of its project pipeline.”

Mr. Cutillo continued, “With respect to our fourth quarter 2019 results, revenues increased slightly on an organic basis driven by commercial and aviation projects which were largely offset by the impact of continued delays in the start of two large design-build joint venture projects that we mentioned in the second quarter of 2019. We expect our second quarter 2020 results to start to reflect our execution on these attractive projects and another recently reported design-build joint venture project in Utah.”

“Notably, during our fourth quarter, we reached an contract and resolved numerous pending change orders on a bridge project in Texas that Sterling was awarded in 2014, that had encountered a multitude of delays over the years Because of owner design issues. Additionally, we successfully negotiated the inclusion of prospective protocols to address future design changes, related schedule reliefs and accelerated resolution of change order requests and agreed to a new schedule to accelerate the project completion date. These components of the contract enabled us to recoup $17M of incurred cost to date and importantly reduce the risks of further unreimbursed cost increases through the completion of the project in early 2022.”

“Results for our Residential section were essentially flat as contrast to the fourth quarter of last year, as we’d anticipated. Revenue growth has continued to be pressured by a shift in demand towards smaller square footage slabs, although margin levels remain robust. We continue to make good progress with the ramp-up of our residential business in Houston and expect margins to improve for us in 2020 as we gain critical mass in this market. Overall, we continue to see low to mid-single digit revenue growth and continued attractive margins in our residential section, as we are positioned in very attractive and rapidly growing geographies.”

Mr. Cutillo concluded, “Based on the anticipated contribution from Plateau and our record high Backlog, together with our view on current booking trends, market strength, continued mix shift and improved execution, we expect to generate full year 2020 revenues of between $1.375B and $1.4B. With the integration of Plateau into Sterling, we expect that our blended gross margin will rise to the 13% to 14% range. Therefore, our expectation for 2020 net income attributable to Sterling ordinary stockholders is between $38M to $41M, not including acquisition related costs of $2M to $3M. We expect our full year 2020 diluted average ordinary shares outstanding to be about 28.5M. Importantly, our 2020 net income guidance includes an effective income tax rate of about 26%. This rate includes non-cash income tax expense of about 21% of pretax income; or $11M ($0.39 per diluted share) contrast to a non-cash income tax benefit in 2019 of $27.4M ($1.01 per diluted share). This change in non-cash tax expense reflects the reversal of our net operating tax loss reserve in the fourth quarter of 2019 driven by sustained taxable income over the past several years in accordance with the accounting requirements.”

“Our outlook does not assume any major positive changes in government investment in infrastructure, which would likely enhance our growth forecast starting in 2021 and beyond as we are well-positioned to win further economically compelling heavy civil project opportunities across our geographies. We expect our 2020 EBITDA to be $125M to $135M. With the free cash flow we expect to generate in 2020, we are targeting a reduction in our debt to forward looking EBITDA leverage ratio from our current proforma basis of 3.5X, to about 3.0X by the end of the year. Considering all of these factors, we are highly encouraged about our prospects for generating additional value for our shareholders over the course of 2020.”

The Industrial Goods sector company, Sterling Construction Company, Inc. noticed change of -6.24% to $8.12 along volume of 294862 shares in recent session compared to an average volume of 160.92K.   The average volatility for the week at 12.84% and for month was at 7.74%. There are 30.24M shares outstanding and 26.84M shares are floated in market.


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