Buying Spree Helps Tutor Perini Grow, Build Business

Tutor Perini Corp. is on a multi-million dollar buying spree. The Fortune 500 civil construction company has purchased three companies since January and has another acquisition in the works, in an effort to grow business in certain niche industries. This month, Tutor purchased Frontier-Kemper Constructors, Inc., an Indiana-based construction company that builds tunnels, for $61 million in cash. As part of the deal, Tutor also said it assumed about $52 million in debt, of which $35 million was paid off at closing. Also this month, the company said it signed a letter of intent to buy Lunda Corp. for $153.5 million, including $131.8 million in cash at closing and $21.7 million in a note payable in five years. The deal includes a supplementary payment based on profitability targets for three years following the closing date. Tutor purchased privately-held Anderson Companies for $64.6 million in cash in April, and Fisk Electric Company for $105 million in cash in January. Both acquisitions also include additional payments based on profitability targets over the next three years. The deals follow first-quarter results that missed analysts’ expectations. Tutor’s net income for the first quarter ended March 31 was $6.9 million, compared to $20.9 million for the same period last year. That’s a decrease of 66.9 percent year-over-year. Revenues from construction operations slid 28.9 percent to $615.3 million, from $865.1 million in the same period last year. While the acquisitions should bode well for the company, there is some concern about the company’s performance because the first quarter was “so weak,” said Avram Fisher, an analyst with BMO Capital Markets. In order for the company to hit its annual guidance of $2.20 to $2.40 in diluted earnings per share, acquisitions need to be closed and new projects should be booked, he said. “They have done the first part,” Fisher said, referring to the acquisitions. Company officials say the decrease in operating results reflect the substantial completion of large hotel and casino projects in Las Vegas, a delay in future projects and increase interest expense related to the company’s unsecured debt. The backlog of uncompleted construction work at March 31 was $4.2 billion. That includes new contract awards and adjustments to contracts in process that were included during the 2011 first quarter totaling $562.3 million. The company believes its financial position and credit arrangements are enough to cover its backlog. Purchases of companies like Frontier-Kemper Constructors and Fisk Electric Company gives Tutor Perini more expertise in the underground industry and expands its reach in the electric industry, said Kenneth Burk, the company’s executive vice president and chief financial officer. “It strengthens our resume,” he said. Burk said future acquisitions are planned for this year, but he declined to discuss details. “Our strategy is to expand our reach geographically, as well as by picking companies that do a lot of work themselves,” he said. Revenues for 2011 are expected to be in the range of $4.2 billion and $4.7 billion, and are still on track, Burk said.