Stantec (STN) Tops Q3 EPS by 24c, Revenues Beat

Stantec (NYSE: STN) reported Q3 EPS of $0.59, $0.24 better than the analyst estimate of $0.35. Revenue for the quarter came in at $952 million versus the consensus estimate of $693.81 million.

Third Quarter 2019 Highlights (After adoption of IFRS 16)

• Net revenue grew 12.4% to $952.6 million for the quarter (11.5% increase year-to-date) due to:
  • 7.4% organic growth (4.1% year-to-date) driven by growth across all geographies, particularly in the US and Global operations and the Environmental Services, Infrastructure, and Water businesses; and
  • 4.8% acquisition growth (5.9% year-to-date), primarily due to recent global acquisitions (Peter Brett Associates LLP and Wood & Grieve Engineers).
• Gross margin increased 13.4% and, as a percentage of net revenue, increased from 53.7% to 54.2%, reflecting continued focus on project execution and project mix.
• Administrative and marketing (A&M) expenses were at the low end of the Company’s guidance range at 37.3% of net revenue, including a 0.3% impact from severances associated with organizational reshaping efforts. Excluding severance costs, A&M as a percentage of net revenue was consistent with the prior year on a pre-IFRS 16 basis and reflects the normal cycle, which also sees A&M expenses expand in the fourth quarter.
• Adjusted EBITDA increased 46.9% to $159.1 million, representing 16.7% of net revenue (a 14.6% increase to $124.1 million before IFRS 16, representing 13.0% of net revenue).
• Contract backlog was $4.4 billion, a 5.4% increase from December 31, 2018—representing 11 months of work.
• Net debt to adjusted EBITDA (on a trailing twelve-month basis) was 1.6x—within the Company’s internal guideline of 1.0x to 2.0x (post-IFRS 16 adoption).
• Operating cash flows from continuing operations increased 115.8% to $139.0 million, mainly due to increased cash receipts from clients and IFRS 16 (a 68.0% increase to $108.2 million before IFRS 16).
• Days sales outstanding was 104 days (91 days including deferred revenue), unchanged from June 30, 2019.

“Solid growth across all geographies and business units, with the exception of Energy & Resources, continues to validate our ongoing strategy to diversify to new geographies and to target acquisitions that support organic growth. Environmental Services and Infrastructure were leaders in delivering growth this quarter,” said Gord Johnston, Stantec’s President and Chief Executive Officer. “Our organizational reshaping efforts are on track to deliver cost savings of approximately $40 million to $45 million, or $0.26 to $0.29 per share, on an annualized basis with our administrative and marketing expenses in line with our expectations for Q3 19. This initiative has not affected our ability to execute projects, build backlog, or achieve organic growth. We are continuing to take the right steps to position our organization for success in 2020 and we look forward to presenting our strategic plan to all of our stakeholders in December 2019.”

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

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