Stantec (STN) Misses Q4 EPS by 5c, Beats on Revenues

Note: May not be comparable

Stantec (NYSE: STN) reported Q4 EPS of $0.32, $0.05 worse than the analyst estimate of $0.37. Revenue for the quarter came in at $749.9 million versus the consensus estimate of $740.12 million.

• Stantec’s gross and net revenues were $1,246 million and $805 million in the quarter, up 0.4% and retracting 1.9%, respectively; net revenue was lower because some legacy projects experienced challenges (described further below), which also negatively impacted organic growth and gross margins.
• Stantec achieved organic gross revenue growth of 4.1% and organic net revenue growth of 2.2%, mainly from growth in Energy & Resources. Organic growth was partly offset by the impact of foreign exchange rates and the divestiture of Innovyze.
• Gross margin decreased in the quarter—from 54.5% to 52.9%—mostly due to $26 million in revenue and cost provisions for legacy projects that had challenges in the quarter. This includes recording revenue adjustments and cost provisions of $5 million on a major design-build project due to additional costs, design, and project scope issues in the US Water business. Construction Services also incurred $5 million in cost increases related to certain UK-based waste-to-energy projects where delays and certain asserted performance issues resulted in increases in costs to complete. In addition, approximately $16 million in cost escalations were incurred due to site conditions, client delays, and productivity issues in legacy US-based water hard-bid projects. Claims against parties believed to be responsible for causing much of these added costs have been or will be asserted, and any recoveries obtained may benefit future quarters as the claims are resolved.
• Administrative and marketing expenses as a percentage of net revenue increased—from 44.3% in Q4 16 to 44.9% in Q4 17—mainly due to a $6.2 million increase in our provision for self-insurance, and a $3 million increase in marketing and administrative labor due to lower utilization. These were partly offset by a $5.3 million decrease in our share-based compensation.
• Other income increased $6.6 million mainly due to the realization of a $6.7 million gain on the sale of equities on investments held for self-insured liabilities.
• EBITDA decreased 16.3% in the quarter—from $82.9 million to $69.4 million. Adjusted EBITDA decreased 24.7%—from $83.8 million to $63.1 million—due to project impacts on gross margin and administrative and marketing cost increases (described above).
• The reported tax rate in Q4 17 was 64.8% or $20.6 million, primarily impacted by the US tax reform, as described below. The impact of the US transition tax increased tax expense by $31.2 million, partly offset by a revaluation of deferred tax assets and liabilities of $12.6 million, resulting in a net impact from US tax reform of $18.6 million. The effective annual tax rate was 24.0% in Q4 17 and 27.0% in Q3 17. The change resulted in an effective tax rate of 7.6% in the quarter.
• Adjusted diluted EPS decreased from $0.35 to $0.32, or 8.6%, in the quarter, due primarily to project impacts on gross margin and administrative and marketing cost increases, offset by a lower effective tax rate.

For earnings history and earnings-related data on Stantec (STN) click here.

You May Also Be Interested In

• Tesla plans 'flying' Roadster stunt at SpaceX Texas site as early as August
• Hydrofarm Holdings Group, Inc. (HYFM) Misses Q2 EPS by 134c
• Zeo Energy Corp (ZEO) Misses Q2 EPS by 7c