Can Stantec Inc. Maintain Its Impressive First-Quarter Momentum?

Stantec (NYSE: STN  ) , the Canadian-based provider of planning, engineering, architecture and project management services released first-quarter results late last week, and looks to be firing on "all cylinders". Over the past 12 months, Stantec's stock is up over 40%, compared to a 13% gain for the S&P 500.

Broadly speaking, Stantec's results either met, or slightly surpassed, analysts' expectations. Compared to the same period a year earlier, revenues increased 12% to $574 million and net income grew 18% to $33.5 million. Diluted earnings per share increased to $0.71, an increase of over 16% from the $0.61 earned in the first quarter of 2013. 

Apart from the headline figures, here are three important takeaways from Stantec's latest earnings release, and what it means for investors.

Strong organic growth
A key metric for firms like Stantec is organic growth. Selling more to new and existing customers, without the need to rely on acquisitions for revenue growth, is always a good sign for architecture, engineering, and construction companies. 

During its most recent quarter, Stantec's organic revenue grew nearly 7%, driven by a strong level of demand among its oil and gas customers. The impressive growth came despite negative U.S. organic growth, which contracted 4.6% during the quarter. Management pointed to harsh winter conditions which delayed the start of some projects, and required additional time to complete those already started, as part of the problem. However, both Canada and the U.S. suffered through difficult weather for most of December and January. It's likely that other issues were more to blame, including fewer public dollars being spent on buildings and infrastructure due to severely constrained government budgets.

Despite the lack of organic growth in the U.S., management sees it as a temporary setback that should be reversed in the coming quarters as new projects, part of a record backlog, begin.

Record backlog
Management and investors alike take great comfort in a large and growing backlog. Stantec has both.

Stantec ended the quarter with a backlog of $1.6 billion, up 14% from the $1.4 billion at the end of 2013, and 24% greater than the same period a year earlier. For comparison, the backlog of large competitor Fluor (NYSE: FLR  )  increased 10% during its most recent quarter, and is up 18% compared to the same period a year earlier. 

However, part of the impressive backlog expansion is due, in part, to a weak Canadian dollar. Since Stantec reports in Canadian dollars, a stronger U.S. dollar increases the value of American based contracts in the firm's backlog.

Accelerating acquisitions, strong pipeline
Last year was not a particularly busy time with acquisitions for Stantec. So far, 2014 looks more promising.

Stantec completed two acquisitions during the first quarter of this year -- environmental services firm Williamsburg Environmental Group and California-based Processes Unlimited International, a multidisciplinary engineering and and design firm with seven offices across four states. Stantec has proven adept at identifying quality acquisition targets, and integrating them effectively.

With the additional acquisition of JBR Environmental Consultants completed after the end of the quarter, Stantec has added over 700 employees during the first four months of the year. Even with this increased pace of activity, Stantec management reaffirmed the strength of its current pipeline of potential acquisition targets.

Foolish bottom line
Stantec is off to a solid start in 2014 – it's already raised its expectations for revenue growth from 4% to 5%, and is sitting atop a record backlog. 

Organic growth exceeded expectations, and should continue to outperform with the resumption of growth in the U.S. Its ability to identify, acquire, and integrate firms that complement its innovative business model, part of Stantec's competitive advantage, will continue to be a key element of its growth strategy in 2014. Since 2000, Stantec has completed 75 acquisitions and appears to be back on track after a relatively slow 2013.

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