North American Construction ((TSE:NOA)) has held its Q2 earnings call. Read on for the main highlights of the call.
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The recent earnings call for North American Construction presented a mixed sentiment, highlighting both achievements and challenges. The company reported strong growth and significant contract wins in Australia, alongside a steadfast commitment to safety and operational efficiency. However, the quarter was marred by increased maintenance costs, operational disruptions, and project margin adjustments. Despite these hurdles, the company remains optimistic about its prospects for the latter half of 2025 and beyond.
Record Revenue Growth in Australia
Australia emerged as a standout performer for North American Construction, posting $168 million in revenue for the quarter, more than doubling since Q2 2022. The MacKellar Group notably set a company record with $60 million in June alone, underscoring a robust demand and a promising growth trajectory in the region.
Strong Safety Performance
The company continues to prioritize safety, achieving a total recordable incident rate of 0.42, which is better than the industry target. This performance highlights North American Construction’s ongoing commitment to safety and operational efficiency.
Major Contract Wins and Renewals
North American Construction celebrated significant contract achievements, securing the largest contract in its history post-Q2 and achieving a record backlog. The company also maintained a 100% renewal rate in Australia and renewed its Texas thermal coal mine management contract until 2028.
Successful Financing
The completion of a $225 million offering of senior unsecured notes has bolstered the company’s liquidity, positioning it well for future growth opportunities.
Higher Maintenance Costs in Australia
The quarter saw unexpected high maintenance costs in Australia due to reliance on subcontractor labor, which negatively impacted EBITDA.
Operational Challenges in Oil Sands
An abrupt halt in work in April led to increased operational and overhead costs, adversely affecting the company’s financial performance.
Fargo Project Margin Adjustment
The settlement and updated project plan for the Fargo project resulted in significant margin adjustments, impacting the quarterly financials.
Component Issues in Canada
Early failures of certain components in the heavy equipment fleet in Canada led to higher depreciation costs, adding to the financial challenges.
Forward-Looking Guidance
In its forward-looking guidance, North American Construction reported an EBITDA of $80 million with a margin of 21.6%, influenced by higher maintenance costs in Australia, operational disruptions in the oil sands, and margin adjustments at the Fargo project. Without these factors, EBITDA would have exceeded $100 million, with a typical margin of 27-28%. The company anticipates a strong second half, aiming for a return to historical growth trends in 2026 with annual organic revenue growth of 5-10%.
In conclusion, while North American Construction faced several challenges this quarter, the overall sentiment remains optimistic. The company has demonstrated resilience through strong revenue growth in Australia, significant contract wins, and a commitment to safety. With strategic financing and a positive outlook for the future, North American Construction is poised to overcome current obstacles and achieve its growth targets.