Tutor Perini Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Tutor Perini is a construction contractor operating through Civil, Building, and Specialty Contractors segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $1.028 billion | $1.117 billion |
| Gross profit / margin | $67.1 million / 6.5% | $102.7 million / 9.2% |
| Income (loss) from construction operations | $(0.9) million | $37.0 million |
| Net income (loss) attributable to Tutor Perini | $(12.1) million | $13.8 million |
| Diluted earnings (loss) per share | $(0.24) | $0.27 |
| Net cash used in operating activities | $73.4 million | $32.8 million |
Revenue declined about 8%. Gross margin fell, and the company shifted from prior-year profit to a loss. The Q1 results include an unexpected $17.8 million pretax charge, primarily non-cash, following an unfavorable arbitration decision involving a completed New York Civil project. Management said reduced project activity also weighed on results. The effective tax rate was 28.1%, versus 37.1% a year earlier.
Segments, awards, and backlog
- Civil: Revenue was $263.1 million, down 14%; construction income was $2.8 million versus $31.9 million. The segment’s 1.1% operating margin was down from 10.5%, primarily reflecting the arbitration charge and lower activity.
- Building: Revenue was $490.2 million, broadly unchanged; construction income increased to $6.4 million from $5.2 million, with improved performance on two California health-care projects.
- Specialty Contractors: Revenue declined 13% to $274.8 million and construction income fell to $7.2 million from $14.8 million, reflecting lower activity and favorable prior-year project adjustments.
- New awards totaled $2.22 billion, compared with $2.1 billion in Q1 2017. Backlog rose 16% from year-end 2017 to $8.48 billion: Civil $4.48 billion, Building $2.24 billion, and Specialty Contractors $1.77 billion. The Newark Airport Terminal One project contributed to awards across segments.
Cash, liquidity, and debt
- Cash and cash equivalents were $174.3 million at quarter-end, including joint-venture funds restricted to JV-related uses; cash available for general corporate purposes was $75.4 million. Restricted cash and investments totaled approximately $57.3 million.
- Working capital was $1.6 billion; the current ratio was 2.00. Operating cash outflow primarily reflected project working-capital investment and incentive-compensation payments. Investing cash outflow was $16.9 million, including $20.0 million of property and equipment purchases.
- Total debt was $817.3 million, up from $736.3 million at year-end 2017. Net cash provided by financing activities was $71.1 million, primarily from increased net borrowings. The company reported approximately $263–264 million available under its $350 million revolver and compliance with its financial covenants. Rolling-four-quarter leverage was 3.06:1 against a 3.50:1 maximum; fixed-charge coverage was 2.61:1 against a 1.25:1 minimum.
Outlook, risks, and unusual items
No specific numerical earnings or revenue guidance is provided. Management described the growth outlook over the next several years as favorable, particularly for Civil, citing infrastructure funding and prospective projects. It also expects additional award activity and noted that some previously awarded projects should ramp up during 2018. These expectations are subject to award timing and execution.
- Contract estimates depend on judgments about costs, claims, change orders, disputes, and variable consideration. At March 31, costs and estimated earnings in excess of billings included $577.8 million of claims and $324.9 million of unapproved change orders; $465.8 million of the total balance was estimated to be collected beyond one year.
- The company identified risks from project delays, cost overruns, disputed recoveries, competition, government spending, joint-venture obligations, and debt covenant compliance.
- The Five Star Electric government investigation remained unresolved; the company could not estimate a potential loss or range of loss. For the Alaskan Way Viaduct matters, a potential material adverse financial impact was considered neither probable nor remote, and the potential loss was not reasonably estimable.
- Other disclosed disputes include the Long Island Expressway/Cross Island Parkway and Fontainebleau matters. Management stated that the ultimate resolution of the matters discussed was not expected to materially adversely affect the company, based on information then available.
- ASC 606 was adopted January 1, 2018 using the modified retrospective method. Its reported Q1 impact on net loss attributable to Tutor Perini was a $0.3 million reduction; prior-year figures were not restated.
Important facts for investors to verify
- Whether claim and unapproved-change-order balances are ultimately approved, collected, and converted to cash.
- Whether operating cash flow improves and project working capital and receivables remain manageable.
- Whether backlog converts to revenue and margins recover as newer projects ramp up.
- The final financial and legal consequences of the arbitration charge, Five Star investigation, and other significant disputes.
- Unrestricted corporate liquidity, borrowing availability, debt levels, and covenant headroom.