Sterling Construction (NASDAQ: STRL) reported Q3 EPS of $0.33, $0.02 worse than the analyst estimate of $0.35. Revenue for the quarter came in at $291.3 million versus the consensus estimate of $301.9 million.

CEO Remarks and Outlook:

“Sterling generated 25% year-over-year growth in earnings during the third quarter despite severe weather in our Texas market,” stated Joe Cutillo, Sterling’s Chief Executive Officer. “Record setting rainfall hampered the ability of our Texas heavy civil operation and, to an even greater extent our residential concrete construction business’s ability to execute on projects during August and September. The good news is, that even with around a month’s worth of consecutive rain in Houston, and even more in the Dallas area during the third quarter, we were able to hit our expectations for the period, which reflects the benefits of Sterling’s overall diversity with respect to geographies, end markets and construction capabilities.”

“Our strong year-over-year earnings growth reflects continued gross margin expansion relative to the prior year period for our heavy civil business resulting from a combination of our disciplined bid practices, increasing diversification of projects outside of heavy highway, more efficient execution on jobs and cost rationalization. Additionally, our SG&A as a percent of revenue is at a best in class level, providing us with significant operating leverage. On the project front, outside of our Texas market which was adversely impacted by the poor weather, all of our other geographies performed well with continued strong results coming out of our Rocky Mountain region. As of the end of the third quarter, our combined backlog was up by nearly 13% since the end of June as our bookings were excellent during the period. We announced several new project wins in a variety of end markets in recent months, including a very large joint venture project in Colorado with a contract value expected to exceed $200 million. We continue to see very robust markets with in our footprint including some future large projects in the Rocky Mountain region.”

‘With respect to our residential concrete construction operations, while operations were made difficult by the heavy rain during the third quarter, we are on track to make up the lost production in the fourth quarter, with more open foundation orders going into the fourth quarter than in the business’s history. While rising interest rates have translated into heightened concern over the future of the U.S. residential construction market, it’s important to understand that Dallas-Fort Worth, our primary residential market, has a growth outlookthat far exceeds the national average, even with tempered expectations resulting from rising interest rates. Additionally, we are in the process of organically expanding this business and continue to penetrate the Houston market, another region with a favorable growth outlook, with our unique business model.”

Mr. Cutillo continued, “We continued to strengthen our balance sheet with our cash and cash equivalents rising to nearly $90 million as of the end of the third quarter. With our increasingly healthy liquidity situation and our outlook for consistent free cash flow, we are actively pursuing opportunities to enhance our organic growth through accretive M&A that can further our goal of reshaping our portfolio to an end-market mix of approximately 50% non-heavy highway work, which we expect to contribute to further margin expansion.”

Mr. Cutillo concluded, “Based on booking trends, market strength, continued mix shift, reduced cost and improved execution, we expect another strong growth year in 2019 and will provide more specifics around our 2019 outlook when we report fourth quarter 2018 results. Our outlook does not assume any major positive changes in government investment in infrastructure, which would likely enhance our growth forecast.”

For earnings history and earnings-related data on Sterling Construction (STRL) click here.