In the wake of a 2022 that didn’t pan out the way executives wanted, leadership at Tutor Perini is nevertheless hopeful moving forward this year.
A fourth-quarter loss largely fueled a significant end-of-year net loss for the Sylmar-based general contractor in 2022, and the company finished the year with a continuing downturn on its project backlog. However, net cash last year represented a high for the company since its 2008 merger-creation, and it is expected that the number of public projects going out to bid this year will present rebound opportunities for the company.
“We anticipate that our cash generation will be even stronger for 2023,” Chairman Ronald Tutor told investors during the company’s quarterly earnings call in March. “While we are certainly disappointed with the various negative impacts to earnings in the fourth quarter and for the full year of 2022, we strongly believe and are optimistic for better performance in 2023 and anticipating revenue growth and a gradual return to profitability.”
Lack of projects
Total net loss for Tutor Perini last year was $210 million, a dramatic swing compared to the net income of nearly $92 million in 2021.
Much of that loss — $92.9 million — was realized in the fourth quarter. Tutor attributed the rocky 2022 to a variety of factors, at least one of which he expects to turn around soon: the lack of new projects.
Another indicator of the lack of new projects is that the company’s backlog total — that is, projects the firm is contracted for but have not been realized financially yet — failed to grow, finishing at $7.9 billion in spite of Tutor winning a number of projects.
At the end of 2021, Tutor Perini’s backlog was $8.2 billion, and before the Covid-19 pandemic it stood at $11.2 billion.
Share prices, which had closed at $7.19 just prior to the earnings report, fell the following day, opening at $5.71 and eventually closing at $6.18. Shares were trading at $5.64 as of Wednesday.
Tutor explained that the company last year lost out on around $10 billion worth of projects in which it was the low bidder but still over the budget of the client. Additionally, one project Tutor Perini had submitted a several-billion-dollar bid on, the Maryland Express Lane project, was put on hold, presumably because of a pandemic-related funding gap with the state.
Bright future?
Tutor said he is confident that backlog number would climb. The company recently submitted a $2.95 billion bid on a jail project in Brooklyn, New York, as well as two bids on California projects worth a combined $500 million.
“Most of these projects contributed to revenue decline in 2022 but are expected to be rebid later in this year or in 2024,” he said. “The lack of new awards has prevented us from replacing revenue associated with certain projects that have completed or are nearing completion.”
Other potential projects on the horizon include the New York City Queens Jail, which is going to bid in May, potentially for $3 billion; the estimated $2 billion Honolulu Rail Transit Project, for which Tutor Perini was rejected as a low bidder in 2020 because it was over budget; and the Inglewood People Mover Project, which is expected to be bid on later this year.
In addition to the lag in new projects, Tutor noted that the company suffered from a variety of other factors, such as the company taking on additional work within the projects without yet settling on a pay scale for them or being on the wrong end of negative judgments regarding additional work it had to perform.
Meanwhile, S&P Global Rating’s response to the earnings report was to further lower Tutor Perini’s junk issuer credit rating two notches, from B+ to B-.
The stock index cited the company’s discussed shortfalls in making the adjustment, charging it as a “weaker than expected” performance for 2022.
High leverage
“As a result, leverage was substantially higher than our expectation,” the index report read. “In addition, we believe there is heightened refinancing risk given that Tutor Perini’s secured debt would spring to January 2025 if the company is unable to refinance its unsecured debt.”
S&P also lowered Tutor Perini’s rating on its term loan from BB to B+ and on its senior secured notes from B- to CCC.
Although S&P agreed that Tutor Perini’s backlog should preserve its cash flow this year, it was less optimistic that public and private clients will have sufficiently recovered financially to meet the bidding demands of their projects.
“Although the $1.2 trillion Infrastructure Investment and Jobs Act could benefit Tutor Perini by funding new and existing infrastructure projects, we believe there are uncertainties around the timing and magnitude of new projects the company expects to win this year due to budgetary constraints for certain customers and/or lower bids from competitors,” it said.