Tutor Perini Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017; unaudited consolidated results. Comparisons are with Q1 2016 unless stated otherwise. Dollar amounts below are in millions except per-share data.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 | Change |
|---|---|---|---|
| Revenue | $1,117.4 | $1,085.4 | +2.9% |
| Gross profit / margin | $102.7 / 9.2% | $105.1 / 9.7% | Profit decreased |
| Income from construction operations | $37.0 | $40.1 | -7.7% |
| Net income | $13.8 | $15.4 | -10.6% |
| Diluted EPS | $0.27 | $0.31 | Down $0.04 |
| Interest expense | $15.6 | $14.1 | +$1.5 |
| Operating cash flow | $(32.8) | $15.9 | Down $48.8 |
The effective tax rate was 37.1%, versus 42.4%; Q1 2017 benefited from tax effects of share-based compensation. Construction-operations margin was approximately 3.3%, compared with 3.7%.
- Cash and working capital: Cash and cash equivalents were $104.8 at quarter-end, down from $146.1 at December 31, 2016. Management said $42.8 was available for general corporate purposes, with the balance principally representing the company’s share of joint-venture cash. Restricted cash was $60.2. Working capital was $1.4 billion; the current ratio was 2.02.
- Debt: Reported debt at March 31 was $780.8, and debt-to-equity was 0.50. The company reported compliance with its debt covenants. Under the 2014 revolver, $114.8 of capacity was available at quarter-end.
- Cash flow: Operating cash use reflected working-capital investment and incentive-compensation payments, including timing of vendor and subcontractor payments. Investing cash use was $15.1, including $9.7 of additional restricted cash and $5.7 of capital expenditures. Financing provided $6.6, including increased net borrowings, partly offset by $10.8 of tax payments related to net share settlement.
Segments, backlog, and changes from prior periods
- Civil: Revenue of $304.6, down 9%; construction-operations income of $31.9, down 5%; margin 10.5%, versus 10.0%. Activity declined on projects nearing completion, partly offset by other transit and West Coast work. Segment awards were about $1.5 billion, including a $1.4 billion California joint-venture mass-transit project.
- Building: Revenue of $497.1, up 6%; construction-operations income of $5.2, down 58%; margin 1.0%, versus 2.7%. The income comparison was affected by favorable closeout adjustments in the prior-year quarter.
- Specialty Contractors: Revenue of $315.7, up 12%; construction-operations income of $14.8, up 57%; margin 4.7%, versus 3.3%. Higher activity and improved project performance contributed; prior-year results included net favorable adjustments of $3.0 on Five Star projects, comprising a $14.0 favorable and a $13.8 unfavorable project adjustment.
- Backlog: $7.17 billion at March 31, up from $6.23 billion at December 31, 2016, following $2.06 billion of new awards. It was below approximately $8.2 billion a year earlier, as revenue burn had outpaced awards over the year. Backlog mix was approximately 54% Civil, 24% Building, and 22% Specialty Contractors.
Outlook, risks, contingencies, and unusual items
- Management described the multi-year growth outlook as especially favorable for Civil, citing infrastructure funding measures, the FAST Act, anticipated public spending, and prospective projects. This is qualitative commentary, not a numerical earnings forecast. Management expected rain-related delays on certain California projects to be made up later in the year.
- On April 20, 2017, after quarter-end, the company issued $500 million of 6.875% senior notes due 2025 and entered a new $350 million revolving credit facility, with capacity for an additional $150 million of borrowings. Proceeds were used to repurchase or redeem the 2010 senior notes and repay the term loan and 2014 revolver; the prior credit facility was terminated. The filing does not provide a clear pro forma debt balance after these transactions.
- Costs and estimated earnings in excess of billings totaled $840.8, including $464.2 of claims and $250.1 of unapproved change orders. Recovery and timing depend on agreement, resolution, or progress under contracts; estimates could change.
- Significant matters include the Five Star Electric investigation by the U.S. Attorney’s Office, for which the company said it could not predict the outcome or estimate potential liability; the Alaskan Way Viaduct tunnel disputes and litigation, whose potential material adverse financial impact management assessed as neither probable nor remote; and a proposed NOAA claims settlement subject to final government approval. The filing also updates other project disputes and claims. Management generally said ultimate resolution of disclosed matters was not expected to materially adversely affect the company, while noting that outcomes and recorded recovery estimates could change.
- Other risks include inaccurate contract estimates, project delays and cost overruns, disputed change orders, failure to recover project working capital, competition, reduced public infrastructure spending, debt-covenant compliance, joint-venture performance, and possible goodwill impairment. Management stated there were no material changes to the risk factors in the 2016 Form 10-K.
Important facts for investors to verify
- Whether claims, unapproved change orders, and other unbilled project balances convert to cash on the expected timetable and at recorded amounts.
- Whether the Q1 operating cash outflow and working-capital investment reverse, and how much cash is unrestricted versus held for joint ventures or restricted purposes.
- The post-refinancing debt, interest burden, available revolving capacity, and covenant headroom under the new facility.
- Building-segment profitability and execution on projects nearing completion; also whether Civil backlog converts to revenue and margins as expected.
- Developments in the Five Star investigation, Alaskan Way Viaduct disputes, NOAA settlement approval, and other significant project claims.