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Sterling Construction Company Inc Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: March 15, 2012 10:07PM
Sterling Construction Company Inc (STRL) filed Annual Report for the period ended 2011-12-31. Sterling Constr has a market cap of $157.5 million; its shares were traded at around $9.01 with a P/E ratio of 9.7 and P/S ratio of 0.3. Sterling Constr had an annual average earning growth of 14.3% over the past 10 years.
Highlight of Business Operations:The Company experienced a significant decline in earnings in 2011 as compared to 2010 and earlier years. For 2011, the Company had an operating loss of $52.2 million, a loss before income taxes and earnings attributable to noncontrolling interest owners of $51.7 million, a net loss attributable to Sterling common stockholders of $35.9 million and a net loss per diluted share attributable to Sterling common stockholders of $2.24. This loss included a pre-tax charge of $67.0 million related to the impairment of goodwill. This impairment charge had an after-tax impact of $41.8 million or $2.55 per diluted share. The impairment of goodwill arose when we made the determination that the adjusted fair value of the Company was less than the calculated book value. Excluding the impact of this charge, for 2011 the Company had operating income of $14.8 million, income before income taxes and earnings attributable to noncontrolling interest owners of $15.3 million, net income attributable to Sterling common stockholders of $5.9 million and net income per diluted share attributable to Sterling common stockholders of $0.31. In contrast, for 2010, the Company had operating income of $35.9 million, income before income taxes and earnings attributable to noncontrolling interest owners of $36.5 million, net income attributable to Sterling common stockholders of $19.1 million and net income per diluted share attributable to Sterling common stockholders of $1.13. Although revenues for 2011 increased 9.0% to $501.2 million, our overall margins were adversely affected by production issues which affected a number of construction projects, primarily in the fourth quarter of 2011, and operating income declined by $21.1 million. This decline was in part a result of revisions to estimated profitability on construction projects in 2011, both favorable and unfavorable, which resulted in a net pre-tax charge of $11.8 million.
We expect that revenues will increase more than 25% from 2011 to 2012 as a result of the higher backlog at the end of 2011 as compared to 2010, the impact of a full year of operations for JBC and Myers, both of which were acquired in August 2011, and contract awards of $144 million from January 1, 2012 through March 12, 2012. However, based on estimated gross margins in our current backlog, we expect our overall gross margins for 2012 to be lower than the 8.0% reported for 2011. In addition, we anticipate that our net income and diluted earnings per common share of stock attributable to Sterling common stockholders for 2012 will be below the $5.9 million and $0.31 per share reported for 2011 (after excluding the $41.8 million and $2.55 per share impact of the goodwill impairment).
Due to the size and nature of our construction contracts, one or a few customers have in the past and may in the future represent a substantial portion of our consolidated revenues and gross profits in any one year or over a period of several consecutive years. For example, in 2011, approximately 28.8% of our revenue was generated from UDOT and approximately 15.1% was generated by TxDOT. Similarly, our backlog frequently reflects multiple contracts for certain customers; therefore, one customer may comprise a significant percentage of backlog at a certain point in time. Examples of this are NTTA, Caltrans, Central Texas Regional Mobility Authority, UDOT and TxDOT which comprised 20.4%, 18.0%, 11.2%, 9.9% and 9.8% of our backlog at December 31, 2011, respectively. The loss of business from any one of such customers could have a material adverse effect on our business or results of operations. Also, a default or delay in payment on a significant scale by a customer could materially adversely affect our business, results of operations, cash flows and financial condition.
At December 31, 2011, our backlog of construction projects was $741 million, as compared to $660 million at December 31, 2010. Our Company was awarded or was the apparent low bidder on $582 million of new contracts in 2011, compared to $473 million of new contracts in 2010. Our contracts are typically completed in 12 to 36 months. At December 31, 2011, there was approximately $125 million of our consolidated backlog where we were the apparent low bidder, but had not yet been formally awarded the contract or the contract price had not been finalized. Historically, subsequent non-awards of low bids or finalization of contract prices have not materially affected our backlog or financial condition. Backlog includes $127 million attributable to our share of estimated revenues related to joint ventures where we are a noncontrolling joint venture partner. As discussed further in “Item 1. Business―Recent Developments―Financial Results for 2011, Operational Issues and Outlook for 2012 Financial Results,” based on our current estimates, the gross margin in our backlog is lower than the gross margin of 8.0% realized in 2011 as a result of operational issues and lower infrastructure capital expenditures by federal and state governments.
contracts receivable decreased by $1.9 million in 2011, $10.0 million in 2010 and $15.2 million in 2009 while the excess of billings over costs incurred and estimated earnings decreased by $6.5 million and $17.4 million in 2011 and 2010, respectively, and increased by $0.2 million in 2009;
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