Tutor Perini Sees Profits in Infrastructure Funds

 Demand for the construction services of Tutor Perini Corp. remain strong as evidenced by the pipeline of projects it has won recently. 

The Sylmar construction company received in the third quarter new bookings valued at $2.1 billion, bringing the total backlog to $8.4 billion. 

Chief Executive Ron Tutor said in a conference call with analysts in early November to discuss third-quarter earnings that major new awards included the Cedars-Sinai Marina Del Rey Replacement hospital being built by its subsidiary Rudolph and Sletten; the $471 million Los Angeles International Airport Metro Connector; the $220 million I-70 Missouri River Bridge for subsidiary Lunda Construction; and a $122 million military firing range in Guam.

Currently, the company is awaiting decisions for three projects it has bid on in the past three months, Tutor said, adding that those projects are the $3 billion JFK Terminal One project in New York, the $2 billion Maryland Purple Line light rail project and the $2 billion Metro-North Railroad Penn Station Access project, also in New York.

“In addition, we are optimistic that the substantial incremental funding expected to eventually flow from the proposed federal infrastructure bill will result in significantly extended duration of even greater demand with a large number of high-margin civil projects that we will be able to pursue,” Tutor said.

The Sylmar firm reported on Nov. 3 adjusted net income of $15.4 million (30 cents a share) for the quarter ending Sept. 30, compared to adjusted net income of $36.9 million (72 cents) for the same period a year earlier. Revenue decreased by 18 percent to $1.2 billion.

Analysts on average expected earnings of 63 cents on revenue of $1.3 billion, according to Thomson Financial Network.

The company’s share price has dropped by 12 percent between when the third quarter financial results were announced and Dec. 16 when the share price closed at $12.66. It closed at $12.29 on Dec. 29. 

COVID-impacted quarter

Brent Thielman, an analyst with D.A. Davidson & Co. in Portland, Oregon, said in a research report on Tutor Perini that even given depressed multiples, underperformance of shares and tailwinds from increased infrastructure spending coming ahead, he kept the company at a “buy” rating. 

On the positive side, the margins of the company’s civil business unit met expectations despite having lower revenue and work volume in the third quarter. But on the negative side, the specialty business unit continued to perform below expectations with an operating loss, Thielman said in the report.

“This combined with lower revenue volume after prior quarters of slower bookings led to a reduction in (earnings per share) guidance,” Thielman added in the report. 

Gary Smalley, Tutor Perini’s chief financial officer, said during the conference call that civil segment revenue for the third quarter was $546 million compared to $612 million for the third quarter of 2020. 

“The decrease was primarily due to reduced project execution activities on various projects in the Northeast that are also completed or are nearing completion,” Smalley said. 

Smalley emphasized during the call that total revenue growth was on the horizon for the company. 

During the COVID-19 pandemic, revenue has been impacted in both third quarters of last year and in 2020, he said. 

“As the recent new awards and other new large projects, if awarded to us, start to contribute significantly, the revenue from the new projects should eventually more than offset declining revenue contributions from projects that are completing and nearing completion,” Smalley said. 

During the conference call, Steven Fisher, an analyst with UBS Group AG, the Swiss-based private bank, specifically asked when the company expected to see revenues grow on a year-over-year basis again.

“Is that sometime later in 2022? Or could that be sooner than that?” Fisher inquired.

Tutor responded that he expected the company’s existing work to ramp up dramatically. A key element to revenue growth is which of the three projects that it bid on recently it will be awarded. 

“Will we get all three, one out of three? We got to wait and see,” Tutor said. “And then fortunately, there’s more right behind it.”

While it was hard to be specific, his assumption was by next summer the company will have a significant backlog the likes of which have never been dreamed and as it catches up, revenue will increase and with it, profit, Tutor added.

“But we got – the work’s got to get released. COVID’s got to get put behind us and these government fundings have to happen,” he said.