Stantec (STN) Tops Q1 EPS by 14c, Revenues Beat; Withdraws FY20 Guidance

Stantec (NYSE: STN) reported Q1 EPS of $0.49, $0.14 better than the analyst estimate of $0.35. Revenue for the quarter came in at $955.2 million versus the consensus estimate of $693.81 million.

First Quarter 2020 Highlights

• Net revenue increased 5.7% or $51.1 million mainly due to organic growth of 4.2% and acquisition growth of 1.4%. Organic growth was achieved in all geographies and businesses and was particularly strong within Energy & Resources, Environmental Services, and Water.
• Gross margin increased 3.7% or $18.2 million and decreased as a percentage of net revenue to 53.0% from 54.0% in the prior period primarily due to project mix.
• Administrative and marketing expenses were 38.5% of net revenue compared with 39.5% in the prior period primarily as a result of improved utilization and operational efficiencies.
• Adjusted EBITDA from continuing operations increased 9.9% or $12.6 million to $139.7 million, representing 14.6% of net revenue compared with $127.1 million or 14.1% of net revenue in the prior period.
• Net income decreased 11.6% or $5.2 million to $39.7 million primarily due to the recording of non-cash lease asset impairments arising from the Company’s strategic initiative to optimize occupancy costs and unrealized fair value losses on investments held for self-insured liabilities, partially offset by net income from discontinued operations.
• Contract backlog is $4.7 billion—an 11.0% increase from December 31, 2019—representing approximately 12 months of work.
• Net debt to adjusted EBITDA (on a trailing twelve-month basis) is 1.3x—at the lower end of Stantec’s guideline of 1.0x to 2.0x.
• Operating cash flows for continuing operations, typically an outflow in the first quarter, improved by 48.7% with outflows of $45.4 million compared to $88.5 million in the prior period.
• Days sales outstanding was 86 days at March 31, 2020, compared to Stantec’s target of 90 days.

“Against the backdrop of unparalleled global disruption, Stantec delivered solid first quarter earnings that are in line with our pre-pandemic expectations,” said Gord Johnston, Stantec’s President and Chief Executive Officer. “I could not be more grateful for the commitment and dedication demonstrated by our employees as they have risen to the challenge of supporting our clients, our communities, and each other during these extraordinary times.”

2020 Outlook

“Our business is well diversified across geographies and sectors, with a project mix that is more heavily weighted towards public sector end clients. This, combined with the strength of our balance sheet and the commitment of our talented workforce, gives me confidence that we are well positioned to withstand the challenges caused by the pandemic,” said Gord Johnston. “Although we have some line of sight to the impacts for Q2, the remainder of the year is harder to forecast. Given the continuing uncertainty caused by the pandemic, we believe it is prudent to withdraw our guidance for 2020.”

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

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