Stantec (STN) Tops Q2 EPS by 17c, Revenues Beat

Stantec (NYSE: STN) reported Q2 EPS of $0.52, $0.17 better than the analyst estimate of $0.35. Revenue for the quarter came in at $951.1 million versus the consensus estimate of $693.81 million.

Second Quarter 2020 Highlights

• Net revenue decreased 0.3%, or $2.5 million, mainly due to an organic retraction of 2.1% partially offset by the strong US dollar. Stantec achieved organic growth in the Energy & Resources and Water businesses and in its US operations. Project slowdowns and deferrals as a result of the COVID-19 pandemic contributed to organic retractions in the other businesses and geographies.
• Gross margin decreased 5.4%, or $27.8 million, and decreased as a percentage of net revenue to 51.5% from 54.3% primarily due to the impact of pandemic-related disruptions in the Company’s and its clients’ operations as well as project mix.
• Administrative and marketing costs were 36.2% of net revenue compared with 39.1% in the prior period primarily as a result of improved operational efficiencies driven by the Company’s 2019 reshaping initiative, the implementation of staffing strategies in response to the pandemic, and reduced discretionary spending.
• Adjusted EBITDA from continuing operations decreased 2.0%, or $2.9 million, to $142.5 million, representing 15.0% of net revenue compared with $145.4 million or 15.2% of net revenue.
• Net income increased 6.7%, or $3.3 million, to $52.6 million, and diluted EPS increased by 6.8%, or $0.03, to $0.47 as a slight reduction in EBITDA was more than offset by reduced net interest expense and amortization of intangible assets.
• Adjusted net income increased 2.9%, or $1.6 million, to $57.7 million, representing 6.1% of net revenue, and adjusted diluted EPS increased 4.0%, or $0.02, to $0.52.
• Contract backlog was $4.7 billion at June 30, 2020, a 10.7% increase from December 31, 2019. This represents approximately 12 months of work.
• Net debt to adjusted EBITDA (on a trailing twelve-month basis) at June 30, 2020 was 1.0x, at the low end of the 1.0x to 2.0x guideline.
• Operating cash flows from continuing operations improved by 55.0% with inflows of $251.5 million compared with $162.3 million in the prior period; this improvement was mainly due to increased cash receipts from clients and lower payments paid to suppliers, partly offset by higher payments made to employees. Q2 20 cash flows also benefited from various pandemic tax deferral programs which included the deferral of approximately $35.1 million in income tax and other tax payments due at various dates before the end of the first quarter of 2021.
• Days sales outstanding (DSO) was 82 days, a decrease of 4 days since March 31, 2020, and remains below the Company’s pre-pandemic target of 90 days.

“Our solid second quarter results are a credit to our employees who continue to execute our client-centered strategy in the midst of unprecedented disruption,” said Gord Johnston, Stantec’s President and Chief Executive Officer. “Although net revenues retracted nominally as anticipated, our commitment to excellence drove healthy adjusted EBITDA and adjusted net income margins of 15.0% and 6.1%, respectively.”

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

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