Quanta Services Underperforms

Quanta Services Inc. (PWR) reported first-quarter 2011 adjusted loss per share of 5 cents, below the Zacks Consensus Estimate of earnings per share of 3 cents and prior-year earnings per share of 15 cents.

Total Revenue

Total revenue for the quarter was $849.0 million compared with $748.3 million in the prior-year quarter. Consolidated backlog at the end of the quarter was $6.56 billion compared with $6.32 billion. Revenue for the quarter includes the impact of Valard Construction acquisition, completed on October 25, 2010.

The company’s result in the quarter was greatly affected by delay in major projects due to issues related to attaining permit from government. Huge costs had incurred to comply with certain regulations led by difficult weather conditions.

As a result of these as well as other circumstances, Quanta Services is currently discussing about the change orders and claims exceeding $60 million. The company expects to benefit from these changed orders and claims in future.

Segment Details

Electric Power revenue in the quarter was $566.5 million compared with $456.8 million in the prior-year period. Natural Gas and Pipeline revenue came in at $176.8 million compared with $188.9 million, Telecommunications revenue was $79.4 million compared with $78.2 million and Fiber Optic Licensing revenue was $26.3 million compared with $24.3 million.

Backlog came in at $4.3 billion, $1.3 billion, $533.5 million and $425.8 million in Electric Power, Natural Gas and Pipeline, Telecommunications and Fiber Optic Licensing segment, respectively.

Income and Expenses

Operating loss in the quarter was $26.9 million compared with an income of $42.3 million in the prior-year quarter. SG&A expense was $91.5 million compared with $81.0 million in the comparable quarter last year.

Segment operating income was $31.3 million and $12.0 million in Electric Power and Fiber Optic Licensing segment, respectively. Natural Gas and Pipeline and Telecommunications segment reported operating loss of $37.0 million and $3.6 million, respectively.

Outlook

Quanta expects revenues for the second quarter of 2011 to range between $925 million and $975 million and diluted earnings per share to be in the range of $0.14 to $0.16. Adjusted diluted earnings per share (non-GAAP earnings) is expected to be $0.18 to $0.20 for the second quarter of 2011.

For 2011, Quanta expects revenue to be in the range of $4.1 billion and $4.4 billion. The company changed its diluted earnings per share guidance for 2011 to be between $0.65 and $0.80 after taking into consideration the first quarter of 2011 result. Quanta expects adjusted diluted earnings per share for the full year 2011 to range from $0.80 to $0.95.

Quanta Services has been witnessing an increased customer spending as they have started to invest in infrastructure with the improving economic environment, leading the company to believe that it has overcome the worst phase of the recession.

The company expects to benefit significantly from the ongoing bidding processes in its Natural Gas and Pipeline segment, leading to a continuous increase in the segment’s backlog.

However, the industry in which Quanta operates, is served by numerous small owner-operated private companies, some public companies and several large regional companies. In addition, relatively few barriers prevent entry into some of the industries.

As a result, any organization that has adequate financial resources and access to technical expertise may become one of its competitors. Competition in the industry depends on number of factors, including price. Major competitors of Quanta Services are EMCOR Group Inc. (EME), Integrated Electrical Services Inc. (IESC) and MYR Group Inc. (MYRG).

Quanta Services Inc. is a leading national provider of specialty contracting services, and is one of the largest contractors serving the transmission and distribution sector of the North American electric utility industry. Effective during the quarter ended Sep 30, 2009, Quanta began reporting its results under four reportable segments: (1) Electric Power Infrastructure Services, (2) Natural Gas and Pipeline Infrastructure Services, (3) Telecommunications Infrastructure Services and (4) Fiber Optic Licensing.

Quanta Services currently holds a Zacks #2 Rank (short-term Buy recommendation) on the stock.

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