Sterling Construction’s Earnings Call Highlights Robust Growth

Sterling Construction ((STRL)) has held its Q1 earnings call. Read on for the main highlights of the call.

The recent earnings call for Sterling Construction painted a largely positive picture, highlighting the company’s robust performance and growth prospects. The sentiment was buoyed by notable achievements in the E-Infrastructure Solutions segment and record-setting financial metrics. The strategic acquisition of Drake Concrete and a substantial increase in backlog further bolstered the optimistic outlook. However, challenges in the Building Solutions segment and rising administrative costs were noted as areas of concern. Overall, the positive elements and growth opportunities were seen as outweighing the negatives.

Strong Growth in E-Infrastructure Solutions

The E-Infrastructure Solutions segment emerged as a standout performer, with revenue surging by 18% and a remarkable 60% growth in the data center market. This segment’s adjusted operating income soared by 61%, with operating margins climbing to 23%, marking a 618 basis point increase. These figures underscore the segment’s critical role in Sterling’s growth strategy.

Record Earnings and Profit Margins

Sterling Construction reported record earnings, with adjusted earnings per share rising by 29% to $1.63. Adjusted EBITDA saw a 31% increase, reaching $80 million. The company also achieved a significant expansion in gross profit margins, which grew by over 400 basis points from the previous year to 22%.

Significant Backlog Growth

The company’s backlog experienced a substantial 17% year-over-year increase, reaching $2.1 billion. The book-to-burn ratio was reported to be over two times, with the E-Infrastructure Solutions backlog alone growing by 27% in the first quarter. This growth in backlog is a strong indicator of future revenue potential.

Positive Cash Flow and Liquidity Position

Sterling Construction demonstrated strong cash flow generation, with operating cash flow at $85 million. The company ended the quarter with a solid liquidity position, holding $638.6 million in cash and a net cash position of $328.6 million, which provides a strong foundation for future investments and growth.

Strategic Acquisition of Drake Concrete

The acquisition of Drake Concrete for $25 million is expected to be a strategic boon for Sterling, projected to contribute $55 million in revenue and $6.5 million in EBITDA by 2025. This acquisition aligns with Sterling’s growth strategy and enhances its capabilities in the construction sector.

Decline in Building Solutions Segment

Despite the overall positive performance, the Building Solutions segment faced challenges, with revenue declining by 14% and adjusted operating income falling by 18%. These declines were attributed to affordability issues in the housing market, adverse weather conditions, and tough comparisons to the previous year.

Increased General and Administrative Expenses

General and administrative expenses rose by $7.3 million, driven by one-time separation expenses and investments in personnel and systems. While these costs are a concern, they are also indicative of the company’s commitment to strengthening its infrastructure and human resources.

Forward-Looking Guidance

Sterling Construction provided an optimistic financial outlook for 2025, anticipating revenue between $2.05 billion and $2.15 billion, with net income projected at $222 million to $239 million. Diluted earnings per share are expected to range from $7.15 to $7.65, while adjusted diluted EPS is forecasted between $8.40 and $8.90. The company also projects EBITDA of $381 million to $403 million and adjusted EBITDA from $410 million to $432 million. This guidance reflects Sterling’s strong outlook, supported by its robust backlog and strategic focus on expanding its E-Infrastructure Solutions segment.

In conclusion, Sterling Construction’s earnings call highlighted a strong performance with significant growth in key segments, particularly E-Infrastructure Solutions. Despite some challenges in the Building Solutions segment and increased administrative costs, the company’s strategic acquisitions and robust backlog position it well for future growth. The forward-looking guidance further underscores the company’s positive trajectory, making it an attractive prospect for investors.